What is IR35 and how will the new rules impact businesses?
What is IR35?- It is a piece of legislation designed to combat tax avoidance by contracted employees. It targets contractual workers who operate through an intermediary, such as a limited company, to provide services to a business, but who would be seen as a full-time employee if they didn’t work through the intermediary.
HMRC defines these workers as “disguised employees” as they may be awarded the same rights and benefits that full-time employees have, but are not paying the same amount of tax.
What’s changing and when? - In the original legislation, sole responsibility for paying the right amount of tax sat with the contractor. Under the new “off-payroll” rules, the obligation now sits with the company that has hired the contractor for works.
What kind of businesses will the changes affect? - As of April 2020, all public authorities and medium and large businesses will be responsible for deciding the employment status of workers. This includes third sector organisations, such as some charities.
The rules apply to all public and private sector companies that meet two or more of the following conditions:
Have an annual turnover of more than £10.2 million
Have a balance sheet total of more than £5.1 million
Have more than 50 employees
Small businesses are exempt from the change. It remains the intermediary’s responsibility to decide the worker’s employment status for each contract.
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