IR35 Reform in the Private Sector

IR35 Off-Payroll Reform arrives in the private sector on 6 April 2021, and companies must ensure they are compliant ahead of this deadline.


“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 will be extended to the private sector from April 2021 onwards. This was originally due to be implemented from April 2020 but following a delay due to COVID-19, the changes are set to come in from April 2021. This will see 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.

It is expected that these changes will take effect from April 2021 and be limited to large and medium sized enterprises that engage contractors through PSCs from April 2021, with the rules being phased in for small enterprises in future years.

Those who start the planning process now will not only give themselves a head start to ensure compliance with the new regulations, but also ensure the changes are cascaded throughout the business as appropriate.

IR35 Waterfall Diagram