REMINDER: Two months to go – IR35 changes affecting consultants and contractors

Posted on: February 8th, 2021

There are just two months to go until the postponed changes to the off-payroll working rules (IR35) come into force, which may impact upon your use of contractors, consultants and freelancers.  

As we previously reported, strict IR35 tax rules will apply to the private sector from 6 April 2021, which means that now is the time for you to take stock and review the status of your workforce. The changes are going to shift the burden on determining the tax status of the individual providing the service to the organisation at the end of the supply chain.

To give you some practical examples, the new rules will apply to medium or large organisations that engage contractors and consultants through an intermediary, such as:

  • Engaging an individual to provide services via their own personal service company
  • Using a recruitment company to supply you with temporary labour (such as contractors or temps)
  • Using an umbrella company to contract with and pay your workforce

Regardless of your organisation’s size, the correct employment status of the contractors and consultants you engage on a self-employed basis has become a very significant and topical issue for many employers, not just because of these upcoming IR35 changes. The cost of getting employment status wrong can be substantial, ranging from an entitlement by the contractor to claim unfair dismissal, National Minimum Wage and even holiday pay, together with the tax notices that may be issued by HMRC.

We appreciate that it can be difficult to navigate through the various case law, guidance and legislation to determine whether an individual your organisation engages to provide services is an employee, worker or self-employed, for legal and tax purposes, and we understand the need and benefits of a flexible workforce. However, whilst you may have a contract in place which states that the consultant or contractor is self-employed, the tribunals, courts and HMRC will always look beyond the documents in place to see how the relationship operates in practice.

If you are interested in speaking to our Employment Team about employment status generally, or would like to understand the impact of the IR35 changes on your business and its use of off-payroll working, our Employment Team would be happy to help.

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