Changes to the IR35 rules on off-payroll working have come into force today, affecting medium and large organisations in the private sector that engage contractors.
The off-payroll rules, which are already in place for public sector organisations, had been scheduled to be extended to the private sector from 6 April 2020. This date was then postponed by a year due to the pandemic.
Designed to reduce tax avoidance for contractors employed via personal service companies, the new rules place the burden on organisations engaging contractors to determine their employment status and assess whether or not IR35 applies.
Where the contractor is deemed to be on-payroll and caught by IR35, the organisation that pays the individual’s fees is considered to be their employer for tax and national insurance purposes.
The rules only apply to medium and large organisations that meet two of the following criteria:
- An annual turnover of more than £10.2 million.
- A balance sheet of more than £5.1 million.
- More than 50 employees.
Private sector employers are advised to carry out a review of all contractor arrangements and agreements to ensure compliance with the new rules, such as implementing processes and guidelines for determining and communicating employment status in relation to contractors.