In March, the government announced that due to the disruption caused by the ongoing pandemic, it was shelving expected and feared changes in the treatment of what it calls "unpaid work," more commonly known as IR35. . The changes were scheduled to go into effect in April 2020 and have now been pushed back to April 2021.
What is the IR35?
The so-called IR35 legislation was introduced in 1999 to address differences in tax treatment between employees and people who provide their services through a personal services company, wholly owned by the consultant or sole proprietor (referred to as a contractor for the purposes of this article). ) An employee will receive his salary subject to deductions for his taxes and social security contributions and the employer will be responsible for national employers' insurance on this salary at a rate of 13.8% on earnings above a low threshold Due to the obligation of National Insurance Employers, it may be more profitable for companies to obtain certain services through subcontractors, rather than employ staff directly. The person who provides his services in this way enjoys a limited tax advantage, as a result of the fact that it is customary to structure profits as payment of wages at base tax rates, with the payment of the balance income as dividend income in which it appears corporate tax, thus avoiding or minimizing the higher tax thresholds. The 1999 amendments, which remain in force and are increasingly applied by HMRC, introduced a concept of 'estimated earned income', under which payments made to an individual from their own business would be considered income. of employment, leaving the limited company responsible for paying employers' national insurance contributions on amounts paid, whether they receive a salary or a dividend.Who reports to IR35?
The basic criterion that HMRC applies is whether it can be said that, without the involvement of the contractor, the individual supply services would be an employee of the client to whom the services are supplied. Despite HMRC's assurances to the contrary, it is not a simple or straightforward test. In 2018, public sector organizations were forced to make deductions representing PAYE amounts, including employer national insurance, payments to employers, even when PSC was used. This structure was supposed to roll out to the private sector starting in April 2020. There were always exemptions, meant for small businesses. For this purpose, a small business is one with two:- turnover of £ 10,2 million or less
- a balance of €5,1 million or less
- less than 50 employees