Thinking about IR35 and the changes due to come in in April 2021?
It is easy to get confused. Like anything else to do with law and tax, people get the wrong end of the stick.
It is time we did some myth-busting and jargon-busting.
So you can start to get your ducks in a row.
- IR35 is short-hand for the Off-Payroll Working Rules. The rules apply to personal service companies and sole traders – but they apply in different ways. It is not true that only people invoicing through a company need to pay attention to Off-Payroll Working since sole traders can get put onto PAYE in similar circumstances.
- The rules themselves are not new but who has to apply them is changing.
- In April 2019 the public sector had to make assessments to see if their contractors were covered by the IR35 rules. Many were put on payroll (sole traders) or had deductions made from their invoices (personal service companies) and some left the sector causing a shortage of certain skilled workers.
- In April 2021 after a one year delay, this regime is extending to the private sector with a size threshold.
- The size threshold is not about who is doing the invoicing (the service provider) but who is doing the paying (the client).
- If the client is a small company (which means they have to meet two or more of the tests for a small company) the client does not have to make an assessment.
- The test for the client to be exempt from making the assessment is they have to be two of:
- Employ no more than 50 people
- Annual turnover of no more than £10.2m
- Balance sheet worth no more than £5.1m
- No personal service company or sole trader is exempt from IR35. If you are doing business with a small business that is exempt from doing the test then it is your job to assess your own status under the relevant rules.
- Some large companies such as Barclays have decided not to bother to assess people at all and simply insist their service providers use umbrella companies and invoice through them. We don’t know how others will respond.
- KoffeeKlatch customers can get support on this and a lot more in the KoffeeKlatch customer group.
Small traders and IR35
So if you are invoicing a sole trader or a small company client then nothing changes for them or you in April 2021. The situation remains as it has been for years. This may change in due course as the Government has a habit of reducing thresholds – but it won’t happen in April 2021
Accidentally falling into IR35
For most small business owners the issue is making sure you are not caught within IR35 by mistake when dealing with clients who are going to make an assessment. Whilst no one factor works on its own a critical element is being able to send a substitute (and having done so).
This can be a hot potato particularly when you balance the fact you must not be controlled like an employee (and be able to send a substitute) with controlling the personal data flow for GDPR.
It is vital that your contracts are set up correctly (and operated correctly). Whilst you should never change an arrangement deliberately to avoid IR35 if your business model is legitimately one of self-employment and matches the criteria you will not usually be caught up in wrong assessments.
If you want the taxman to view you as the boss of your own company you have to act like it, with all that involves. You need to act like a boss and be in control, able to send substitutes, provide your own equipment, insurance, market your own business and more.
IR35 and contracts
Setting yourself up properly in the first place is a great place to begin. KoffeeKlatch terms of business and associate agreements are designed to keep you in control when you should be and keep your associates in control when they should be.
If you are a KoffeeKlatch customer using our terms of business you will find a free IR35 programme has been dropped into the KoffeeKlatch zone for you if you are within your support period.
IR35 and your associates
While you may be too small to have to assess your associates for IR35 be careful that you are not trading in a way that makes you an employment agency. If you are, then it is your client’s structure and turnover that determines whether you need to sort out IR35 – not yours. For more information on what might make you an agency – read our blog here
Check out our range of IR35 ready contracts
If you haven’t updated your terms of business to take account of this, check out our range of IR35 ready contracts.
There are contracts for you to use with your customers and contracts for you to use with your team. Just choose the niche you operate within: click here .
Your terms of business all come with a free IR35 mini programme included, giving you access to training and support to help you figure it all out.