Before we begin it's important to note that none of what is stated in this article should be considered legal advice, before making any decisions we recommend consulting HMRC and seeking further advice from a legal expert.
What is the IR35 Off-Payroll Working Legislation?
IR35 is a piece of legislation which came into force in April 2000 to ensure that contractors and businesses are paying the appropriate amount of tax according to UK law. It provides a framework to determine an individual's employment status and thus the taxes that they should be paying.
Since it's inception IR35 has undergone various changes to strengthen its mandate.
When do the latest IR35 changes apply from?
06 April 2021.
What is the difference between a Disguised Employee and a Genuine Employee?
Sounds like the start of a joke but this is actually a rather serious question. Put simply, a disguised employee is a contractor who operates through an intermediary (eg. a limited company) and provides their services for an end client just as an employee would.
Unlike a genuine employee a disguised employee attempts to access the tax benefits of being self employed whilst working in a manner that would, for all intents and purposes, make them indistinguishable from a regular employee.
HMRC have provided help in the form of the CEST (Check Employment Status for Tax) Tool to help you see if a worker on a specific engagement should be classed as employed or self-employed for tax purposes.
Will IR35 Off-Payroll Working legislation affect my payroll business?
The April 2021 IR35 changes mean that medium and large sized private businesses will be responsible for identifying ‘disguised employee’ contractors and paying the relevant taxes.
If HMRC finds that a contractor is being treated as a regular employee or is receiving the same benefits as a regular employee they will be deemed as falling within IR35.
It is the course of wisdom to assess your business before the new IR35 changes take effect to see if any of your contractors will be affected.
How far back will the new IR35 Off-Payroll Working Legislation be applied?
Believe it or not, HMRC can take their investigation back up to 20 years if they believe there is a valid reason such as fraud or deliberate tax avoidance. If a contactor has simply made an honest mistake HMRC will likely only look at the past four years.