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Corruda IR35

Is your business ready for HMRC’s newest weapon

The new IR35 Legislation from HMRC is here to change how we do business, with effect from 6 April 2021, medium- or large-sized businesses (so-called ‘end-users/clients’) will be responsible for determining the employment status of individuals who provide services to them through intermediary vehicles such as personal service companies. Currently, the obligation to decide employment status sits with the individual but now it reverses and the decision will be made by the client/end-user.

If Individuals are deemed to be ‘inside IR35’ their Tax, NI & Pension Liabilities both now and in the past may become the End User / Client’s Liabilities, should the End User not be able to pay this obligation, this cost can move up the contractual chain…

Broadly, if the revised IR35 rules apply, end-users (and, in some cases, agencies through which they engage individuals) will need to pay those intermediary vehicles through payroll with appropriate deductions for PAYE and NICs.

These new rules apply to businesses based in the UK or overseas businesses with a UK permanent establishment which are classified as medium- or large-sized organisations. While HMRC has issued guidance on the issue of whether a business is small or medium-sized, in principle IR35 rules will apply directly to businesses that meets at least two of the following criteria for two consecutive financial years:

  • A turnover of more than £10.2 million;
  • A balance sheet total (assets) of more than £5.1 million;
  • An average of more than 50 employees.

Similarly, a corporate entity will cease to be medium- or large-sized if it no longer meets at least two of the above criteria for two consecutive financial years. It is worth mentioning that if you engage with a sub-contractor that you do not believe meets the criteria to be classed as medium or large you can still be held liable for subsequent subcontractors employed by them if they cannot pay the fines imposed by HMRC.

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