IR35: Could you be liable for your contractors’ unpaid tax?

The recent rollout of IR35 tax legislation to the private sector has proved controversial – and confusing! Who will it actually affect? And what issues could it cause? Make sure you are up to date and safe.

Your business could be affected by IR35 if:

  • You employ temporary, contract or agency workers e.g. self-employed labourers or freelance consultants
  • You supply or ‘sub-contract’ self-employed workers on to other businesses e.g. contractors act for an end client on behalf of your business

Problems with IR35 arise if your relationship with the contract worker is found to be that of ‘employer and employee’ rather than client and contractor. Such an assessment would then mean YOU are liable for any underpayment of tax and NI.

What types of businesses will be affected by IR35?

The IR35 rules around contractor status have applied to public sector organisations since 2017. Most commonly, this affected contractors operating via Personal Services companies.

Since 1 April 2021, the rules now also apply to private sector companies. Any business that regularly uses contract, freelance or agency workers will need to comply with IR35. We anticipate that many companies operating in sectors such as Construction and IT in particular will be affected.

IR35 will not apply to small businesses with two or more of the following:

  • Turnover below £10.2 million
  • A balance sheet below £5.1 million
  • Fewer than 50 employees

A note about IR35 and Construction

Businesses operating in construction under the CIS scheme should be aware that IR35 overrides CIS. This is because CIS generally only takes 20% of fees, and this would not be enough to cover both tax and NI liabilities. Click here for more detailed information about how this will impact Construction.

Protect your business from the financial impact of IR35

The safest way to avoid HMRC scrutiny – and potentially a large tax bill – is to clarify the status of your contract workers and ensure their tax and NI arrangements are compliant.

RfM Transform HR can carry out a full review of your arrangements with your clients, contractors, freelancers and agency workers to give you absolute peace of mind in regard to IR35. To arrange your review, email Diane Johnson or call 07720 353450.

We anticipate that many companies operating in the IT and construction sectors could be affected by IR35.

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