What does IR35 mean for the technology sector?
- 3 mins read
While the digital and technology sector may be busy juggling business priorities in the new pandemic landscape, it’s important to remember the fast-approaching IR35 changes which medium to large size companies need to be prepared for. The off-payroll working rules (known more commonly as “IR35”) will come into force on 6 April 2021, a year later than planned due to COVID-19.
As the games and digital industries regularly rely on hiring highly skilled and creative contractors to fill staffing gaps, we look at how the new legislation will affect the creative industries including audiovisual, digital and games.
What is IR35?
To put it simply, IR35 is a piece of legislation that seeks to determine whether a worker is a contractor or an employee of a company. It uses specific criteria to determine a workers’ status, with the main aim of IR35 being to reduce so-called ‘disguised employment’, where companies hire contractors who pay less tax when they should actually be employees.
The Gov.uk website states: “The rules apply if a worker provides their services to a client through an intermediary, but would be classed as an employee if they were contracted directly. A contract for the purpose of the off-payroll working rules is a written, verbal or implied agreement between parties. The off-payroll working rules apply on a contract-by-contract basis. A worker may have some contracts which fall within the off-payroll working rules and some which do not.”
IR35 was originally planned to roll out in the private sector on the 6 April 2020, but due to the COVID-19 pandemic this has been pushed back to 6 April 2021. From this date, it will no longer be the individual’s responsibility to correctly identify their off-payroll status, but instead, this will fall onto the hiring company.
For example, a business that hires UX/UI Designers or an AV Systems Designer on a contract basis will now need to take note of the legal obligations that will fall onto them as the ‘end user’. From 6 April 2021, end users will be required to make and issue IR35 status determinations in relation to each role involving the use of the contractor's services and ensure the appropriate level of tax is being paid. These changes will apply regardless of whether end users engage directly with the contractor or indirectly via a recruitment agency.
Gov.uk explains “From 6 April 2021 the way the rules are applied will change. All public sector authorities and medium and large-sized private sector clients will be responsible for deciding if the rules apply. If a worker provides services to a small client in the private sector, the worker’s intermediary will remain responsible for deciding the worker’s employment status and if the rules apply.”
Who is exempt from IR35?
Where the end-user is a small company, contractors that provide their services through a Personal Service Company (PSC) will continue to be responsible for assessing whether IR35 applies. The Companies Act 2006 defines a small business as a business with two or more of the following features:
• Turnover of £10.2m or less
• A balance sheet total of £5.1m or less
• 50 employees or fewer
Failure to comply with the new IR35 legislation will result in hefty penalties for medium to large sized businesses. To ensure that you’re compliant and guided through the process we’ve created an IR35 Hub which will give you access to:
Designated IR35 Account Manager
Free SDS tool access
Free webinars and training
360 support in assessing the best options for your business
If you would like one of our team members to get in touch, please email IR35@themcggroup.com