What is IR35?
IR35 is anti-avoidance tax legislation which sets the rules to make sure contractors working through personal service companies (PSCs) pay the correct tax. The rules are in place to address what HMRC describe as “deemed employment”, where individuals operating through PSCs work like employees and they should pay broadly the same income tax and NICs regardless of the structure they work through.
The first piece of legislation came into force in April 2000. In April 2017 the government introduced the “off-payroll working reforms”, a separate piece of new tax legislation applying to the public sector. This is being extended to the private sector from 6 April 2021.
What is changing?
Under current rules, it is the responsibility of the individual worker to ensure they are complying with the IR35 rules, and properly accounting for tax through their PSC. Come 6 April 2021 the responsibility for determining the employment status for tax purposes of off-payroll workers will (where services are being provided to non-SME end clients) shift from the individual contractor to the end client business or organisation. The changes also impose payroll obligations on the business that is paying the worker’s PSC or other intermediary.
What do the IR35 changes mean for our flexible consultants?
Responsibility for determining how an assignment should be taxed will move from the consultant’s PSC to the end client (which might be either Pinsent Masons or an external Pinsent Masons’ client).
The end client will be responsible for providing a status determination statement (‘SDS’) confirming their IR35 assessment.
For assignments falling inside IR35, liability for income tax and national insurance contributions, payable by operation of the IR35 rules, moves away from the consultant’s PSC, and Vario/Pinsent Masons as ‘fee-payer’ will have an obligation under the new legislation to make the relevant PAYE deductions.
For assignments falling outside IR35, the consultant’s PSC will remain responsible for accounting for tax and national insurance contributions as appropriate.
There will be a dispute process in place for a consultant to challenge an IR35 assessment – this is a requirement of the new legislation.
I have a question about how the IR35 changes will affect me, who should I contact?
Alongside your usual Vario team contact, our dedicated IR35 team are on hand to provide you with any help and support you may need, or to answer any individual queries. Please do not hesitate to contact them via our IR35 mailbox: [email protected]
How is Vario responding to the upcoming changes?
Vario has a dedicated project team working with Pinsent Masons’ tax specialists and specialist external IR35 advisers to ensure we are as well-placed as possible to ensure continuity of service for Pinsent Masons clients and help and support our Vario consultants navigate the changes. Vario have a range of engagement solutions, both PSC and PAYE.
From April 2020 Vario will continue to support contractors operating through PSCs, whether individual engagements fall inside or outside of IR35. Vario already provides payroll support to PSC contractors undertaking public sector assignments which fall inside IR35, and, from 6th April 2021, will provide support to PSC contractors undertaking private sector assignments caught by the IR35 rules. Vario also has in place alternative PAYE solutions including a PAYE (Umbrella) model, alongside finalising other non-exclusive employed solutions to provide the best possible choice and flexibility.