Are you ready for upcoming employment law updates and IR35?
There’s been a lot of changes in the business world recently, especially after the government’s recent budget announcement:
- Furlough has been extended to the end of September, with businesses contributing 10% in July, increasing to 20% in August and September.
- The National Living Wage will increase from £8.72 to £8.91, coming into effect from April 2021 and will extended to people aged 23 and above.
- The incentive payments to hire apprentices has doubled to £3,000 for those that take part in the scheme.
And now, after a delay in April 2020 due to the pandemic, the new IR35 rules are set to be introduced on 6th April 2021.
But what does that mean for businesses?
If you don’t work with contractors or freelancers, it’s likely this won’t affect you. However if you do, there are a few changes coming that could have an impact on your workforce.
Here is a brief summary of everything you need to know…
What is IR35?
IR35 was a piece of legislation implemented back in 2000 as part of The Finance Act to stop employers and individuals exploiting tax loopholes and was thought to address what was known as “disguised employment.”
The rules state that if a freelancer/contractor is considered to carry out a similar role or work as a permanent staff member within a business, the employer is required to deduct tax income and National Insurance contributions as if they were an employee.
IR35 ensures individuals working but doing so through their own limited company (i.e. ‘personal service company’ or ‘PSC’) or some other form of intermediary pay broadly the same Income Tax and NICs as employed individuals.
From 6th April 2021, the way many contractors pay tax will change. The updated rules only apply to services provided and paid for on or after that date. If services have been started, but not completed before 6th April, the rules only apply to the work completed following that date.
In the past, it has been the contractors themselves who have been responsible for determining their status. However, from April it will be the client who will take responsibility for determining this and documenting proof.
Who do the new IR35 rules effect?
Small businesses are exempt from the new IR35 rules. If you are unsure whether this applies to you, to be defined as a small business you must meet two or more of the following criteria:
- Annual turnover of £10.2 million pounds or less
- 50 employees or less
- Balance sheet of £5.1 million or less
The changes however will apply to organisations in the private sector with an annual turnover of more than £10.2 million pounds, over 50 employees, and/or a balance sheet of more than £5.1 million.
Still not sure how the new changes will affect you?
The first step is to review your workforce and determine whether the contractor should be deemed an employee for tax purposes. The GOV.UK website has an interactive tool to help determine the status of employment for tax purposes.
There’s a lot of information to take in with regards to all the recent changes, so just get in touch to find out more about how we can help.