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New law: IR35 changes for private sector confirmed for April 2021

Larger private sector organisations, and individuals working for them through personal service companies, should ensure they are ready for changes to IR35 now confirmed to take place in April 2021, having been deferred for a year.

Individuals doing work for larger private sector organisations through ‘personal service companies’ (PSCs) – ie companies they have set up to trade through – must comply with new rules in relation to contracts they enter into and/or payments made to them on or after 6 April 2021. The new rules mirror those already in force for public sector bodies.

This is because IR35 – the tax rules which HM Revenue and Customs call the ‘intermediaries legislation’ and which aim to stop individuals avoiding tax by using a PSC/intermediary to provide their services rather than working as a direct employee – is changing.

Previously, if IR35 applied then the PSC had to operate PAYE and deduct National Insurance contributions (NICs) on any salary or wages paid by it to the individual during the tax year.

Under the changes, it is the private sector organisation – the client, agency or third party paying for the work – that is responsible for deciding whether IR35 applies and, if it does, deducting PAYE and NICs.

The new rules only apply if the private sector organisation satisfies two or more of the following:

  • It has a turnover of more than £10.2m.
  • It has a balance sheet total of more than £5.1m.
  • It employs more than 50 employees (including part timers).

Operative date

  • 6 April 2021

Recommendation

  • Private sector bodies with individuals who work for them through personal service companies, and which meet the criteria, should carry out an audit to find out if the new IR35 rules apply. If so, they should introduce new contracts and change their payroll and accounts processes, to ensure they can make the necessary deductions from 6 April 2021.

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