With the private sector IR35 Off-Payroll reform taking effect on the 6th April 2021, most businesses have already started preparing for the upcoming changes, but did you know that you might be exempt from the new IR35 rules?
The new IR35 Off-Payroll rules are already effective in the public sector, but from April 2021 this legislation will be extended to the private sector. This will affect businesses that are currently working, or planning to work, with contractors who operate through an intermediary, such as their own PSC (LTD). Businesses will need to consider their obligations, potential liability and risk involved when engaging PSC Contractors for work.
It is worth noting that there are two key exemptions to this legislation change: If your business is not based in the UK (please note this means full overseas operations) or if your business qualifies as a small company, the upcoming legislative changes are not applicable.
What is the small company exemption?
IR35 legislation includes an exemption for small businesses, that meet a minimum of two of the below criteria, during a 12-month period:
An annual turnover of less than £10.2 million (generated from the trade of the business)
Less than 50 employees (if your business is part of a bigger group or have multiple offices, you will need to consider the total number of employees across the whole group/business)
A balance sheet total of less than £5.1 million (total amount of assets of the business before deductions)
This is in line with how the Government defines the size of a business, but it is important to note here that this exemption only applies if the end-client qualifies. If you have answered yes to two or more of the above criteria, this means you are classified as a small business and will be exempt from the IR35 reform until your situation changes so that you don’t meet 2 or more.
If you qualify as a small business, you will have to confirm in writing (to the contractor or agency you are looking to engage) that you are exempt. Any contractor working with a small business will therefore continue to consider the IR35 rules, and the responsibility and liability do not pass on to the client.
What should you do now to prepare your business for the changes in IR35 if this applies to you?
Choose 2 (or more) people within your business who will oversee the booking of freelancers and doing the Status Determination Statements (SDS) for each freelancer (who operates through their own LTD), for every booking. The individuals that you choose to be the IR35 representatives should ensure that that they have read and understood the IR35 changes coming into effect. We have written a short overview that should prove a useful start to understanding the legislation.
Join us for our FREE lunchtime webinar on Wednesday 24th February at 12pm, specifically aimed at businesses and taking you through how to fully prepare for IR35. Any number of people in your business can register for this HERE and those that attend will be given all the slides, and a video of the webinar, for future use. You won’t be on camera, so you can enjoy your lunch while you listen!
Look at how many contractors you are currently using across your business, and who are operating through their PSC (i.e. Ltd co). Perform a status determination statement, based on the current contracts, to see if the current contracts fall inside or outside IR35.
You can use the CEST tool available on the HMRC website: https://www.gov.uk/guidance/check-employment-status-for-tax. It’s worth noting here that there is a guide available on HMRC’s website on how to use to CEST tool properly to ensure the results are true.
Share these results with your contractor. You can then discuss any relevant changes to the contract and working practices with the freelancer, should you wish to make sure it falls outside IR35 from 6th April onwards.
Alternatively, if you cannot change the working practices, you should look into putting in place a process for all contracts that fall inside IR35 and consider whether you will be able to pay these freelancers through PAYE, and make all relevant deductions at source, or alternatively engage these freelancers through umbrella services.
We are here to help and support you through these legislative changes and, should you have any further questions, please don’t hesitate to get in touch with either Emma Head or Kasia Laug at any time.