5 common questions regarding IR35 answered

By Anush Pervez

5 common questions regarding IR35 answered


As you may have heard by now, IR35 changes for the private sector will be enforced in April 2021. To save you from scrolling endlessly through different information sources, we’ve answered the most commonly asked questions surrounding the issue. Carry on reading to find out…


Before we get in to answering the questions, it’s important for us to define some key terms.


End-User – refers to the client company where the employee is working

Fee Payer – is who pays the Personal Service Company, which may be the end-user, a recruitment agency, or another third party.


1.     What is IR35?


The off-working payroll rules – also known as IR35 – is designed to eliminate tax avoidance via workers supplying their services to clients through the medium of an intermediary, such as a limited company.


It’s important to understand that the IR35 has not changed, but the way it is administered has.


2.     What are the proposed changes to IR35 in the Private Sector?


The proposed changes to IR35 will impact businesses in the recruitment sector who supply workers operating through intermediaries, such as PSCs, as well as medium and end-user clients who use the services of ‘off-payroll’ workers.


It is now the onus of the end-user to determine whether IR35 applies (unless the end-user is a small company.)


However, the fee payer paying the Personal Service Company will now hold the responsibility for paying the necessary tax and (NI) contributions to HMRC.


3.     Why are these changes being enforced?


One of the most important reasons for these changes is to strengthen the agreement with the current off-payroll working rules in the private sector. HMRC estimates that only 10% of people at present working in the current way apply the rules correctly and the cost of non-compliance in the private sector is continuing to grow and is estimated to reach £1.2bn a year by 2022.


4.     Who is impacted by the change?


Recruitment Agencies who supply workers operating through intermediaries such as PSC’s and medium-large businesses who are using the services of off-payroll workers will be affected by the changes.


5.     Who has to do what?


With the changes going ahead on the 6th April 2021, the responsibility of managing IR35 will move away from contractors working in the private sector to the end-client.


If a client and/or agency is not exempt, it is necessary to provide a status determination statement to both the worker and the party it has a contract with.


Note: This blog is for informational purposes only and should not be used for the purpose of providing legal advice.