Main Changes to IR35 rules effective from 6 April 2021
An individual who works through a PSC, and any business or other organisation that engages an individual through a PSC, needs to be aware of the IR35 rule changes effective from April 2021, as a result of which the following now applies.
Whether a PSC’s business client is in the private or public sector, the client has the legal obligation to identify whether its receipt of gross payments from a client is caught by IR35 as “disguised employment” and, if so, the PSC has to pay tax and NI under PAYE. However, where a private sector business client is classified by IR35 as “small”, that obligation rests with the PSC instead.
A private sector business client is deemed to be “small” if at least two of the following apply:
- its annual turnover is less than £10.2 million;
- its balance sheet total is less than £5.1 million;
- it employees number less than an average of 50 in the year.
The size of the PSC and other intermediaries is not relevant for these purposes.
If the private sector business client is not “small”, and its determination is that there is “disguised employment”, it has 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 can pay the PSC the gross remuneration.
If, apart from the PSC there are one or more other intermediary entities, and the entity paying the PSC is not the PSC’s business client, the payer instead has to operate PAYE and make payments net. Please see the next page about information requirements and other IR35 requirements.
Even where the private sector client is responsible for determining whether there is "disguised employment", the individual and their PSC, in their own interest also need to establish the legal position under IR35 and its consequences to them.
Please see the Guidance Note under "Related Documents" below for further details.