IR35 is tax legislation that applies to off payroll working. It’s intended to close a loophole where contractors effectively work as employees, but avoid paying the appropriate tax by working through a limited company.
IR35 was introduced to the public sector in 2017 and has attracted criticism for its complexity. The latest rules to come into effect have not made it any simpler. Nevertheless, there are penalties and sanctions if an HMRC enquiry decides IR35 applies but has not been complied with. Our tax experts can explain the IR35 off payroll working rules and talk you through the necessary actions, whether you are the end-client or a contractor.
The IR35 ‘off payroll’ public sector reforms were extended to the private sector from April 2021 onwards, following a delay due to COVID-19. These changes have seen the responsibility for determining whether an engagement falls within the IR35 rules move from the worker’s Personal Service Company (PSC) to the end user (including where PSCs are engaged via an agency).
If the engaging organisation deems that IR35 applies, the end user must apply PAYE/NIC on payments made to those PSCs if it pays them directly. Otherwise, the agency would be responsible for applying PAYE/NIC to those payments, based on the end user’s IR35 assessment.
While IR35 rules currently only apply to large and medium sized enterprises that engage contractors through PSCs, we expect to see them being phased in for small enterprises in future years.
As an end user or agency that engages with PSCs, there are a number of steps you need to take to ensure compliance with the latest rules:
Our extensive IR35 knowledge means we’re also well placed to support contractors with these off payroll working services:
Where the latest IR35 rules mean you move from a contractor relationship to an employee relationship, that leaves your PSC as a potentially unnecessary entity that needs to have its affairs wound up.
This deserves careful consideration, as how the PSC is closed can have significant tax implications for its shareholders. Our experience in dealing with these circumstances means we can ensure the whole closedown is carefully controlled from start to finish, using the most cost-efficient and tax-efficient processes.
We appreciate the invaluable support provided by AAB during our complex transition. With limited resources, AAB quickly mobilised experienced personnel familiar with offshore payroll, expense systems, and time writing processes. Their expertise ensured a smooth handover, and the process felt routine during the first post-completion month. AAB’s support was instrumental in ensuring a seamless transition.
Andy Bell, VP Finance, Serica Energy
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AAB are more than accountants; they’re trusted partners. At Blaze Manufacturing Solutions Ltd, we’ve experienced significant growth, and AAB ensures we receive the right advice to meet our changing needs. Their guidance supports the aspirations of both our management and team, helping us stay on track as we scale.
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