The delayed IR35 rules will come into effect from April 2021. Michelle Perry, senior employment tax advisor, at Grant Thornton explains why business leaders need to understand how the new rules will impact them now
IR35 is the UK tax law that applies to the engagement of contractors and, from next year, the responsibility of businesses using the services of freelance or contractor workers will increase. We’ve already seen HMRC stepping up activity around the new IR35 rules to press home the message that the scheme will come into force in April 2021. Now is the time to understand the new laws and make sure your business is prepared when the changes take effect.
As a result of COVID-19, changes to the law were pushed back a year and will see every medium and large private sector business in the UK become responsible for setting the tax status of any contract worker. The responsibility for what’s known as off-payroll workers (OPW) means that businesses could now be liable for PAYE and National Insurance contributions on their population of freelancers and consultants.
Some companies are prepared and understand, for better or worse, the implications for their balance sheet. Others still have quite poor comprehension of what’s ahead. Yet in either case, COVID-19 has upped the ante. In disrupting all walks of working life, the pandemic has created pressure on headcount which can certainly result in more demand for contractors down the line.
IR35 has been a long time coming but the reasons why some businesses were still unprepared for the original go-live date of April this year can be quite mundane. It is possible to cite the all-consuming focus demanded by COVID-19 from March but sometimes it just comes down to poor communication between the finance teams and those responsible for securing human resources.
If your organisation was ready this year, there is some merit in revisiting your decisions and outcomes to consider if there is a better approach.
Many have found themselves in difficult conversations about IR35 with their contractor community. Our own work in supporting businesses through these changes includes sense-checking and reviewing the activity to date.
We provide bespoke, one-to-one consultations and Grant Thornton has also developed an online tool to help businesses assess and manage their contractor population – our OPW Client Solution (Employment Status Intelligence Platform).
There is naturally a lot of focus on how IR35 will affect big companies who use high numbers of contractors. However, these things are relative: the larger the company, the more resource there is to bring in expert help to manage through this change. IR35 could well hit medium-sized businesses harder. In either case, we are working hard to make sure the transition to the new regime is as painless as possible.
It is never too early to be prepared for new rules to make sure you understand exactly how your business will be impacted.
For advice on how you can strategise now, contact Michelle Perry at Michelle.E.Perry@uk.gt.com