IR35 Off Payroll Working Check Employment Status
Published / Last Updated on 17/03/2021
IR35 was made law in 1999 and came into force in 2000.
It was a tightening of reporting rules to restrict and prevent tax avoidance by ‘off payroll’ workers who are supplying their services to clients via an intermediary, such as a limited company or self employed and the businesses hiring them who would be required to treat the worker as an employee if the intermediary business structure of self employed or a contract for services limited company to avoid employee obligations, national insurance contributions, holiday rights, sick pay rights and PAYE income tax deductions.
IR35 developed over the years with areas such as the construction industry and quota fisherman now have the business that hired them without income taxes at 20% or 30% and either remitted direct to HMRC or deposited in a ‘fisherman’s account’ bank account that only the fisherman and HMRC can access.
More recently, from 2017 all public sector organisations were forced to do a ‘Check Employment Status’ test for each contracted worker to establish whether they should really be treated as an employee rather than a contractor and then make necessary employed PAYE deductions etc.
This has moved on to the private sector. Originally planned for April 2020 and postponed due to Covid-19, this now comes into force for private sector businesses with effect from 6th April 2021. This does not apply to small businesses defined as follows:
During a 12-month period, a business is deemed to be a ‘small’ company if it meets 2 or more of the following criteria:
- Turnover – not more than £10.2 million
- Balance sheet total – not more than 5.1 million
- Number of employees – no more than 50
That said, we believe it is good practice for all small businesses to do a test for every contractor they engage as sooner or later these rules will apply to all businesses as it now applied to all public sector organisations, large or small.
Try HMRC’s Check Employment Status tool: https://www.gov.uk/guidance/check-employment-status-for-tax
