Black Friday | 25% off online accounting for 6 months!
Following changes introduced by HMRC for the public sector in 2017, and further changes announced for the private sector, responsibility for determining your IR35 status, and which entity pays Income Tax and National Insurance Contributions (NICs) to HMRC depends on the sector you operate in.
(Note: Due to the Covid-19 outbreak, the government has postponed the scheduled changes to the rules surrounding IR35 in the private sector. These will now be introduced on 6th April 2021, a year later than planned.)
In the public sector, responsibility for determining your IR35 status lies with the end client (or agency) who pays your limited company. If your contract is inside IR35, the end client (or agency if you have one) will pay Income Tax and NICs (employers and employees) to HMRC.
In the private sector, until April 2021, it is the responsibility of the limited company to determine whether a contract is inside or outside of IR35. If the contract is inside IR35, the limited company will pay Income Tax and NICs to HMRC.
Often an agency will be involved in the labour supply chain between the end client and a limited company (and worker) which can complicate the flow of funds and deductions for Income Tax and NICs. The following illustrates the differences between the public sector and the private sector where an agency is involved.
The government held a consultation into off-payroll working in the private sector. The changes were confirmed in the Budget held in March 2020, but then the COVID-19 crisis brought about an abrupt change of mind and the Chancellor Rishi Sunak announced a 12-month delay. Meaning that the changes to IR35 will not be brought in until April 2021.
The changes, when finally introduced, will shift the responsibility for making IR35 status assessments from the intermediary providing the worker (i.e. the limited company) to the agency or the end client who pays the limited company. However, after some difficult legal cases and issues with HMRC’s CEST online tool for checking employment status, the government has decided to proceed with caution.
The proposed changes for IR35 in the private sector are that from April 2021:
So although the changes have been delayed by a further 12 months, business and contractors still need to ensure that they understand IR35 and the impact the changes will have. Our IR35 Hub has all the information you need, whether you’re an end-client, recruiter or contractor. Crunch has a range of products and tools to help you navigate IR35 and get the best possible outcome for your business.
Our “What is IR35?” hub is the place to head for all things IR35 – we have an independent IR35 Calculator tool to help you see if you’re at risk from IR35, a jargon-free IR35 business guide as well as articles explaining everything you need to know about IR35. For Crunch clients, we also have an IR35 service for those looking for our expert guidance.