From April 2021, off-payroll working rules are set to change as IR35 tax laws are amended. Technology contractors and employers are likely to have already heard of IR35 and the many rumours circulating on how this tax change could negatively impact them.
Below, is a need-to-know guide* to settle the score for tech contractors ahead of IR35’s implementation.
A Quick Guide to IR35
Currently, a contractor can either be deemed ‘outside IR35’ or ‘inside IR35’. When deemed outside IR35, contractors are considered self-employed for tax purposes and are responsible for making sure that all of their taxes are calculated correctly and paid on time. When deemed inside IR35, they’re considered an employee for tax reasons and are required to pay tax at the same rate as an employee in the same tax bracket.
As of 6th April 2021 in the private sector, the person hiring a contractor will become responsible for determining if the contractor falls under IR35. The liability for paying the tax will then transfer from the contractor to the fee-payer, which is usually the employer. Medium and large businesses will now be in charge of setting the IR35 status of their contractors. Although, when working with a company that HMRC considers ‘small’, i.e a business with no more than 500 employees and an annual turnover not exceeding £100 million, contractors remain responsible for setting their IR35 status.
How IR35 Could Affect Contractors
Those working as tech contractors after 6th April 2021 should fully understand their IR35 status. If they feel as though they have been incorrectly placed inside IR35 when they are working on a self-employed basis, they have the right to challenge this decision. Information on how to do this on the government website.
For contractors currently working on a self-employed basis outside IR35, when in reality the service they provide reflects employment inside IR35, they will be required to pay back the missing tax plus any interest and penalties. HMRC can investigate as far back as six years, so if they are found non-compliant, it can have huge financial consequences.
Will Tech Contractors Face a Loss of Employment Opportunities Due to IR35?
Demand for IT specialists is growing rapidly around the globe, and a frequent complaint from business owners is the jobs are there, but skills are not. Given this difficulty in hiring top tech talent, companies have to take strategic approaches to solve skills shortages. Tech contractors provide a nimble solution for short-term projects and come equipped with all the very latest skills, therefore becoming a popular option for companies worldwide. In the first quarter of 2021 alone, contractors subscribed to Techfynder emerged with new skills and expertise in technologies around financial engineering, cloud commerce and data mining that were not available in 2020. Employers will always rely on these expert contractors to plug their internal skills gaps.
Will Employers Place a Blanket Ban on Contractors?
In brief, the new IR35 legislation means that employers will now have to pay employment taxes in addition to the fees paid to the contractor. Therefore, contractor hires will be more costly, prompting some organisations to place blanket bans on contractor hires (meaning all contractors are placed inside the IR35 legislation without due diligence to individual circumstances), or to cut corners on status determination in a bid to save money.
HMRC issued a fresh document on 27th February which said that blanket bans of this type are not permitted, so contractors need not fear being incorrectly bundled into the IR35 bracket for employers’ ease. Only companies scrapping contractors altogether could be said to be avoiding this legislation.
Irrespective of the IR35 legislation, businesses will always require experts to provide their skills on a short-term basis. Before the pandemic, many professionals chose freelance or contract jobs because they preferred the flexibility and variety it offered. In recent months Techfynder has seen more demand from businesses for contract roles than ever before, reflecting the status of the British economy as a whole and the uncertainty that many companies are experiencing in committing to permanent employment levels.
What Should New Contractors Do Prior to the IR35 Change?
For those wanting to start working on a self-employed basis for the first time and plan to set up as a limited company contractor, do get in touch with an expert for their insight and advice to avoid any costly issues with IR35 later down the line. For subscribers, Techfynder can arrange key services across many sectors including payroll services and taxation through their partners network.
For contractors wishing to find out further information about IR35 in relation to their current situation, please contact the team and they will arrange one of their partners to discuss with you at support@techfynder.com.
*Provided by Techfynder
