Partner Sue Dowling, head of our Employment Law team, explains the fundamentals of the new IR35 Rules, the interrelationship with "employment status" and the implications for private sector (end-user) clients, contractors and intermediaries.
Understanding the fundamentals of IR35
In April 2021, the new IR35 Rules, relating to ‘medium and large’ private sector clients, come into force.
Whilst there has been considerable coverage on the web (including extensive guidance from HMRC), as to the possible implications of these new Rules, much of this coverage looks at the position from a tax or accountancy perspective.
To understand how the new IR35 Rules may apply to you and/or to your business, it is first important to understand the fundamentals behind the introduction of the new Rules, and how, at their core, is “employment status”.
Over the forthcoming weeks, we will be providing a series of blog articles focusing on the new Rules from an Employment Law/status perspective, to help you understand this important area of complex anti-tax avoidance law, which is intertwined with equally complicated employment law principles, relating to status.
The first crucial point to understand (and not to forget!) is that the new IR35 Rules affecting private sector clients will NOT APPLY unless three minimum criteria are met:
- There has to be an Individual who is providing services;
- Those services are being provided indirectly, through one or more Intermediaries, to an end client, and
- The circumstances have to be such that if the Individual had instead provided the services directly to the client, he/she would have been treated as an employee (for tax purposes), of the client and thus would be paid under PAYE. The latter is known as the “deemed relationship”.
The third criteria is how “employment status”, and Employment Law principles, come into sharp focus. If the ‘deemed relationship’ between the Individual and client would be one of genuine self-employed contractor and client, IR35 has no relevance. Conversely, if the ‘deemed relationship’ would be that of employee and client – IR35 Rules (subject to other criteria and exceptions to be explored in later blogs) apply giving rise to income tax/national insurance contributions (NICs) payment implications and other important legal obligations, potentially impacting on the client; intermediaries and/or the individual.
For further information or legal advice, please contact firstname.lastname@example.org or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.