IR35 Regulations – Contractor or Employee?
After a year’s delay (due to Coronavirus), the IR35 Regulations are due to come into effect on 6 April 2021. This affects companies or ‘clients’ that engage contractors through a personal service company.
The Regulations require the client (the company receiving the services) to determine whether the IR35 rules apply (subject to the Small Company Exemption).
If it does, the Regulations set out a process that employers must follow and, of course, the ‘client’ will be required to treat that contractor as “employed” for tax purposes.
Why is this important?
Any contractors who are deemed to be “in employment” for tax purposes are likely to be “employees” for employment law purposes. Employees are entitled to a number of benefits that contractors are not, such as holiday pay, sick pay, and other employment rights including the right not to be unfairly dismissed.
What should you do?
- Check employment status for tax purposes – you can complete HMRC’s online CEST assessment tool. We recommend that you get some advice on the questions that it asks to ensure you do not inadvertently mislead the test. Also you should seek advice from your employment tax specialist if you have any queries on the result.
- From an employment law perspective, if the conclusion is that the contractor is an employee for tax purposes, you need to take advice and address the risk that they may be an employee under employment law legislation.
If you need more information please contact us on 0800 2800 421 or email [email protected] to find out how we can help.