Change to IR35 rules set for April 2021 – public and private sector
The contractor tax known as IR35 (named after an Inland Revenue publication) has existed since April 2000 – see Sch.12 Finance Act 2000. These were supplemented in April 2017 by the creation of new rules relevant to contractor engagement by public authorities – see Chapter 10 Part 2 ITEPA 2003. Further changes are set to apply from 6th April 2021 to both the private and public sector.
The new proposed rules retain the main principles of the public sector rules, but with some key alterations. These will apply to the hiring of ‘off payroll’ contractors by hiring businesses whether private or public sector, the main impact being the extension to the private sector. Hiring businesses that are defined as ‘small’ are excluded from scope of these new rules, and in those cases the original IR35 rules will continue to apply.
So as with the 2017 rules, liability and responsibility will shift away from the contractor. Where there is a deemed employment relationship the liable party (Fee Payer or hirer) is required to account for PAYE and NICs on 100% of the contractor invoice (net of VAT) for services provided, employer NICs being due from the liable party (i.e. cannot be deducted from the payment to the contractor company). The hirer remains responsible for determining IR35 status and rules around communicating the status conclusion have been significantly extended.
Final legislation has not yet been published, but the draft legislation (originally in the Finance Bill 2020) has been available for since July 2019. The change of IR35 rules set for April 2021 were initially planned to apply from April 2020 but delayed due to the coronavirus.