IR35 in the Private Sector – Off-payroll

IR35 in the private sector – now referred to as off-payroll working in the private sector – is changing from April 2021*.

From 6 April 2021, private sector contractors working through their own PSC (Personal Service Company – aka limited company) will no longer be able to determine their own IR35 status.

The current rules are such that PSC contractors are able to assess their own working circumstances. Currently they can determine whether the IR35 rules apply (inside IR35) or do not apply (outside IR35) to their contract.

The changed rules will mean that engagers – i.e. end-clients – will be responsible for assessing the IR35 status of their contractors in the private sector. However in the 2018 Autumn Budget announcement, it was outlined that ‘small’ organisations will not be subject to this requirement. Therefore PSC contractors working for small end-clients will still be able to assess their own status.

* The changes were originally set to come into effect from 6 April 2020. However, due to the coronairus pandemic, the government postponed the off-payroll (IR35) private sector changes for 12 months, with the new implementation date being the 6 April 2021.

Changes to off-payroll working have been ongoing since 2017 when the government rolled out similar changes in the public sector. Following this, it decided to revise the rules for the private sector in a bid to tackle disguised employment further.

In the public sector, no contractor is able to determine their own IR35 status regardless of the size of their end-client’s organisation.

• Thousands of contractors left their public posts for permanent employment or the private sector, resulting in project delays
• Some contractors demanded increased rates of pay to make up for sudden increases in tax payments due to ‘inside IR35’ assessments (whether correct or not)
• Many PSC contractors closed their limited companies, opting to use umbrella companies whereby IR35 is not a risk

Negative effects are still being seen and measured; the full extent of the impact will not be realised for a few years.

The private sector is likely to have a worse experience than the public sector. The majority of private sector end-clients will not have a solid grasp on the general rules – let alone what the changes are. Recruitment agencies and contractors have a challenge ahead; educating clients to avoid blanket and incorrect private sector IR35 assessments will be imperative.

Read more about IR35 in the public sector.

Most private sector contractors with active contracts after 6 April 2021 are likely to be affected. It is advised to consult with your agency and/or end-client contact to find out what they are doing to prepare for the changes.

For example, if you have a 12-month contract beginning 15^th May 2020 your end-client will have to make adjustments to your contract before 6^th April 2021. If they haven’t sufficiently prepared, there is a chance they could decide – potentially incorrectly – that you are inside IR35 from 6^th April. This could result in a sudden decrease in take home pay.

Now you can see where the issues lie, it is important that agencies and end-clients are educated. Contractors who are knowledgeable on IR35 can get involved and help end-clients become aware of the changes. It is also smart to assess your own IR35 status independently to know where you stand in case you are able to appeal an inside IR35 decision.

If you currently have a limited company, do not jump ship just yet – it is still possible to have ‘outside IR35’ contracts after private sector IR35 reform rolls out. In this case the benefits of a limited company would outweigh those of an umbrella company.

Assess your options, speak to an accountant and stay informed on the latest goings-on about off-payroll working in the private sector (IR35).

Speak to us today to discover your personal payroll options in the private sector. We can also discuss with your recruitment agency the right next steps to take.

Are you an agency or end-client engaging contractors in the private sector? Please get in touch with us to understand what you need to have in place before 6th April 2021. The time to prepare is now – don’t wait!