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Get ready for April: IR35 rule changes in full-effect

3rd Feb 2021
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It feels like it has dragged on for a long time, but the government’s much talked about changes to IR35 are finally kicking in from April 2021.

These rules aren’t, of course, ‘new’. They’ve been in effect in the public sector for years. Indeed, IR35 has been in the pipeline since the turn of the Millenium. It’s simply that it’s only just trickled through to the private sector.

April 2021 is simply the private sector catching up. So what’s changing for private sector companies. As you may know, businesses will have to determine whether a contractor falls inside or outside IR35.

So, the onus has been shifted onto the business to deduct the right tax and National Insurance contributions (NICs) and pay this directly to HMRC on behalf of the worker through RTI.

A small change with a big impact

If you employ contractors, you are now responsible for deciding whether the rules should apply and making sure they and their workers pay the right tax. Critics have said this outsources compliance work to businesses.

In effect, these critics are right. But that’s little solace for the many businesses who now have to reorient the way they work contractors. 

The good news is that your only focus for these ‘off-payroll workers’ is tax and NICs. Off-payroll workers are not entitled to receive:

  • Statutory payments: Statutory sick pay, statutory maternity pay, statutory adoption pay, statutory paternity pay, shared parental pay or statutory bereavement leave
  • National Minimum Wage/ National Living Wage rates
  • Annual leave entitlement / holiday pay
  • Student Loans or Postgraduate Loans
  • Automatic enrolment pension scheme contributions

This substantially decreases the complexity of what a business needs to do. The potential financial penalties of getting it wrong, however, are significant.

A blanket approach isn’t compliant

There is a right way and a wrong way to comply with IR35 rules. Just putting all contractors ‘inside IR35’ and hoping for the best isn’t good enough.

You can use HMRC’s online tool to assess whether that freelancer you're working with should be classified as an off-payroll worker. Your payroll software needs to be IR35 ready, too. 

BrightPay will be able to cater for workers who are inside IR35. Once an employee is set up in BrightPay as an off-payroll worker, some settings will be automatically disabled, including student loans, postgraduate loans, directorship, and annual leave entitlements.

Click here to discover how BrightPay caters for IR35.

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