What is IR35 and what is changing this year?

Authored by ARAG

IR35 is the name given to some tax rules that were designed to stop people from paying less in tax and National Insurance contributions by claiming to be independent contractors when they are really employees.

The rules have been in place for over twenty years now, but this year responsibility for deciding whether they apply or not is shifting from the ‘contractor’ to the company that gives them the work.

These ‘off-payroll working rules’ are particularly relevant in some sectors where short-term contracts are common such as construction and IT, but they can apply to any kind of work such as TV presenters, therapists and hairdressers.

The shift in responsibility is effective from April 6, 2021.

However, the change won’t apply to all businesses yet, as those that qualify as ‘small’ under the Small Companies Regime (e.g. turnover less than £10.2 million and fewer than 50 employees) are still exempt.

So, most salons and smaller businesses are unlikely to be affected, but larger operations will need to familiarise themselves with the extensive guidance in good time to put processes in place before the new tax year begins.

No business welcomes an unexpected visit from the taxman and an investigation by HMRC can be lengthy and expensive.

Our Essential Business Legal Insurance provides cover for tax disputes, and our tax advisers will represent your business if you're investigated or where a dispute arises following a compliance check by HMRC.

You can also call our legal advice helpline and get tax-related advice 24 hours a day, 365 days a year.