Effective from 6 April 2021

Forthcoming changes to IR35 rules

The Government some time ago proposed amendments to IR35 rules, to take effect from 6 April 2020. However, in March 2020 the Government announced that those changes would be deferred and instead brought into effect on 6 April 2021, leaving businesses longer to prepare for the changes.

The unpopularity of the intended rule changes amongst those adversely affected by them gave rise to a good deal of lobbying against the changes during 2020. Somewhat surprisingly, and especially given the impact of Covid-19, the Government has consistently refused to withdraw any of its proposals or to make any other concessions in response to lobbying and confirmed that it will go ahead as planned with the changes on 6 April 2021.

Who do the changes affect?

Any individual who works through a personal service company (“PSC”), and any business or other organisation that engages an individual through a PSC, needs to be aware of these forthcoming IR35 rule changes.

Updated in 2020 the Guidance Note on Employment, Self-Employment, and IR35 already covers the April 2021 changes to the IR35 rules. Since the Government has not altered its proposals, the Guidance Note remains up to date. These April 2021 IR35 rule changes are very briefly summarised below. However, we recommend that you familiarise yourself fully with them by reading the Guidance Note. Please click here .

Summary of the IR35 changes

In outline, as from 6 April 2021, if a PSC’s business client is in the private sector, the client, not the PSC, will now have to identify whether the payment of gross payments from the client to the PSC is caught by IR35 as “disguised employment”. However, this responsibility does not move from the PSC to that client where the client is classified by IR35 as “small”. (The size of the PSC and other intermediaries is not relevant for these purposes.)

The private sector business client is “small” if at least two of the following apply to it:

· annual turnover is less than £10.2 million;

· balance sheet total is less than £5.1 million;

· employees number less than an average of 50 in the year.

If it is not “small”, and its determination is that there is “disguised employment”, it will have to operate PAYE, and the remuneration it pays the PSC must be paid net of tax and NI. If that business client determines however that it is genuine self-employment, the business client will be able to pay the PSC the gross remuneration.

Although the private sector business client has these responsibilities (unless it is “small”), the individual and their PSC, in their own interest, also need to establish the legal position under IR35 and its consequences to them.

Separate rules apply where the PSC’s business client is in the public sector. Those rules are not amended by the April 2021 changes.

Updating and reorganizing IR35 and self-employment templates

All the IR35 and Self-Employment contract templates have been reviewed and revised where necessary to bring them fully up to date, taking account of relevant current law and practice (including IR35 rules).

The documents have also been split into two Groups: IR35 and Other Company Contracts (i.e. for service providers who are PSCs or other companies); and Self-employment and Freelancer Contracts (i.e. for service providers who are sole traders).