IR35 Reform in the Private Sector

IR35 Off-Payroll Reform arrived in the private sector on 6 April 2021

Background

“IR35” was originally introduced in 1999 in response to concern over false self-employment and the impact to the Exchequer.

The government believes that less than 10% of Personal Service Companies (PSCs) who should comply with the IR35 legislation currently do, at a cost of over £1 Billion in unpaid taxes and National Insurance (NIC). Public Sector reforms were introduced in April 2017 to help tackle this supposed non-compliance.

The Private Sector Changes

The IR35 ‘off payroll’ public sector reforms was extended to the private sector from April 2021 onwards. This was originally due to be implemented from April 2020 but was delayed due to COVID-19.. This sees responsibility for determining whether an engagement falls within the ‘IR35’ regime moving from the worker’s Personal Service Company (PSC) to the end user (including where PSCs are engaged via an agency).

Where an employment relationship is deemed to exist, the end user will be responsible for operating 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’ determination.

While the changes to the IR35 rules from April 2021 currently only apply to large and medium sized enterprises that engage contractors through PSCs, we would expect to see the rules being phased in for small enterprises in future years.

IR35 Waterfall Diagram

 

"AAB’s advice and output reports were clear and professional which significantly benefited the business and provided us with the guidance we required. AAB were proactive throughout the project ensuring we were kept up to date with any further movements on the proposed changes and were always on hand to attend meetings with the wider management team to discuss key points in more detail"

Finance Director, Leading Oil & Gas Engingeering Company