IR35 Preparation

The Government’s decision to delay changes to IR35 to April 2021 will be welcomed by contractors up and down the country. But the legislation still requires contractors to check their status and convince risk-averse clients that they fall outside it. With the run-up to implementation, recruiters and end users that use contractors will have to ensure that they have determined the contract status for each contract and put the appropriate systems in place to ensure that they are ready.

HMRC wants to claw back £3 billion in taxes that it believes comes from ‘disguised employment’, and the Government has estimated that only one in 10 private sector contractors are paying the right level of tax. Taking the time to prepare for IR35 could make all the difference to how it will affect your business in the following years. Failure to comply with the IR35 reforms could leave your business open to extra expense and exposed to risk.

If you work as a contractor, you need to determine what your tax status is likely to be. The Government’s Check Employment Status for Tax (CEST) tool asks questions such as how you are paid, whether you use your client’s equipment and whether you can or do work for other clients.

Businesses with a turnover of less than £10.2 million or fewer than 50 employees are excluded from the reform, but thousands of contractors who work for clients via personal service companies (PSCs) now face negotiations with clients over whether they can continue to work on a freelance basis.

The IR35 reforms being introduced in April 2021 do not apply to small businesses, going by the official definition of ‘small’ in the Companies Act 2006. This means they must satisfy two or more of the following requirements to be exempt during the tax year in question:

  •     An annual turnover not exceeding £10.2 million
  •     A balance sheet total not more than £5.1 million
  •     No more than 50 employees.

A number of small businesses that fall under the exemption will use contractors. In this case, it makes sense to ensure these individuals are aware of their own tax obligations, in case they assume that your business is responsible for applying the rules.

If you have any further concerns about the IR35 changes, contact us on 02085300720 or email