Proposed changes to IR35 from 6 April 2021

Background

The off-payroll working rules – commonly known as IR35 – were first introduced in 2000 and are intended to ensure that individuals who work like employees pay broadly the same employment taxes as employees, regardless of the structure they work through. HM Revenue & Customs (HMRC) has, for a number of years, sought to combat the perceived tax avoidance of workers supplying their services to clients through an intermediary (such as a "personal service company" ( PSC)). As the use of PSCs has increased over the years, so has HMRC's scrutiny of such arrangements and this is reflected in the introduction of legislation in this area over the last few years.

The government announced during the 2018 Budget that, in order to increase compliance with the existing off -payroll working rules in the private sector, businesses (rather than the intermediary) will become responsible for assessing the employment status of the off-payroll workers they engage and accounting for any necessary employment taxes.

Draft legislation implementing the proposed changes to the off-payroll working rules was first introduced in July 2019, with the intention that those changes would take effect from April 2020. That implementation date was pushed back to April 2021 due to COVID, and the government has taken the opportunity to publish further draft legislation.

The effect of the legislation will be for the private sector to be brought in line with the public sector, although it is worth noting that the changes will apply equally to engagements in the public sector and will amend the existing law governing off-payroll working in the public sector which was subject to fundamental change in April 2017.