Will IR35 Tax Change Affect Me?

  • 06/05/2021
  • Kausik Mukherjee

6th April 2021 will see the beginning of IR35 tax change in the private sector. As per the latest change, Contractors working asPersonal Services Company (PSC) will have to pay taxes differently as compared to their current perspective. A similar change was introduced in the public sector in 2017 and private sector’s changes was due in April 2020. However, it was delayed by a year due to covid crisis.

What is IR35?

IR35 rule ensures that contractors make correct payment ofIncome tax and NICs (National Insurance Contributions) by following off-payroll working rules between PSC and client companies. Over the past years, HMRC feels that PSC and other intermediate bodies have not been paying their taxes correctly and as a result, this tax change was necessary.

How would I know that I fall inside IR35?

There are three situations that have been addressed, they are:

  • Control over work completion: If you under a company that has fixed your working hours/ working days/ working location, then you can be within the purview of IR35.
  • Mutual obligations: If there is a mutual understanding between you and the company that more work will arrive if the current assignment is complete then you may be within the purview of IR35.
  • Are you personally completing the work? If you work with a substitute clause and you are in charge of the same substitute, then you may not be within the purview of IR35.

Note: It is the hiring company that will have to assess whether the resource falls under the purview of IR35 or not. If the company is unable to do so, then it may face ramifications.

What all will be affected?

As per current estimates, contractors who work through PSC route would be the ones who are likely to be affected. On the other hand, HRMC has also worked on its way to identify workers and companies who shall be under the purview of IR35. The rollout of IR35tax change is likely to be doneimpactin threegroups*phases:

  • Individuals in supplying services – up to1,70,000
  • Medium and large organization belonging to the private sector (with more than 50 employees) who avail service via PSCs –up to 60,000
  • Recruitment and similar agencies who avail services via PSCs – up to20,000

*sources on gov.uk

What is the difference between then and now?

IR35 has been into the system from many years. The difference that it will make from 6th April 2021 is that it will allow employed workers to contribute more towards tax and NICs. As per the current proceeding, individual contractors under PSCs only pay their low tax rate by taking reduced salary from PSC company and a bigger portion in Dividend amount to minimise ultimate tax liability. and there is no employer contribution on the lower primary threshold. The IR35 change will ensure that both the employer and employee contribute to NICs.

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