It’s all about tax and employment status, and who makes the decision on status.

The overhaul to the IR35 rules, postponed because of Covid-19, is now less than six months away. For most off-payroll workers, it adds up to a big change to procedure from 6 April 2021.

Who is impacted?

The change applies if you provide your personal services to an end client through an ‘intermediary’. The most common type of intermediary is a worker’s own ‘personal service’ company (PSC), and PSCs form the focus of this Briefing. But please note that an intermediary can also be an individual, partnership, or unincorporated association, and all intermediaries are potentially impacted by the change.

Determining employment status: moving the responsibility

The off-payroll rules, often called the IR35 rules, came in because of government concern about loss of tax revenue, particularly National Insurance Contributions (NICs), arising through the use of intermediaries in the labour chain. The government believes widespread misclassification of off-payroll workers who should really be treated as employees is to blame.

It’s therefore moving responsibility for making the decision on employment status on each contract away from contractors and PSCs, and on to the client receiving their services. This has already been done for engagements in the public sector.

When it will affect you

From 6 April 2021, you are no longer responsible for deciding your employment status if working for a ‘medium’ or ‘large’ client in the private sector. It becomes the client’s responsibility instead. The change also has consequences for tax and NICs.

Companies and LLPs are considered large or medium if they meet two of these conditions for two consecutive years:

  • annual turnover more than £10.2 million
  • balance sheet total (assets) more than £5.1 million
  • they have an average of more than 50 employees
  • note: for unincorporated businesses, only the turnover test applies





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