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
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
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
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).
The contents of this Newsletter are for reference purposes only and do not constitute
legal advice. Independent legal advice should be sought in relation to any specific