Frequently Asked Questions

Question 1

How has IR35 changed?

Accepted Answer

The IR35 rules were originally introduced in 2000 to ensure that individuals working like employees but operating through an intermediary pay broadly the same tax and National Insurance as employees. New rules came into effect on 6 April 2021 to improve compliance, changing responsibility for determining employment status for many public-sector and medium and large private-sector engagements.

Question 2

Key Elements of the post-April 2021 Rules - Client-led status disagreement process

Accepted Answer

A worker or deemed employer can challenge a client's status determination by making representations to the client. The client has 45 days to respond by confirming the original conclusion with reasons or issuing a new status determination statement. If the client fails to comply, it may become responsible as the fee payer and for the associated tax and National Insurance liabilities.

Question 3

Small company exemption

Accepted Answer

The off-payroll working rules apply to public-sector bodies and medium and large private-sector organisations with a UK connection. Small private-sector end clients may be exempt. Under the Companies Act 2006 thresholds described on the page, a company qualifies as small if it meets at least two of these conditions: annual turnover not exceeding £10.2 million, balance-sheet total not exceeding £5.1 million, and no more than 50 employees. For qualifying small clients, responsibility for determining IR35 status generally remains with the worker's personal service company.

Question 4

Key Elements of the post-April 2021 Rules - Client Determinations

Accepted Answer

Since April 2021, private-sector end clients that are not small businesses have been required to determine whether a contractor is inside or outside IR35 and provide a status determination statement, including reasons, to the recruitment agency and worker. If the client fails to provide the statement, it may retain fee-payer liability until it does so. Where IR35 applies, the fee payer is responsible for accounting for the relevant tax and National Insurance contributions.

Question 5

When do the off-payroll working rules apply?

Accepted Answer

The rules apply where a worker providing services through an intermediary would be considered an employee if engaged directly by the client. Since 6 April 2021, public-sector authorities and medium and large private-sector clients with a UK connection generally determine the worker's IR35 status. For qualifying small private-sector clients or clients without a UK connection, responsibility generally remains with the worker's limited company. Where an engagement is inside IR35, the applicable fees are subject to tax and National Insurance deductions.

Question 6

Key Elements of the post-April 2021 Rules - Assignments Inside IR35

Accepted Answer

For assignments determined to be inside IR35, the options described by ERSG include a deemed employment payment through the contractor's personal service company, employment through an FCSA-approved umbrella company, or a Statement of Work engagement where appropriate. Deemed employment payments are processed with applicable tax, National Insurance and other relevant deductions. Umbrella companies may charge weekly fees.

Question 7

What is IR35?

Accepted Answer

IR35 refers to tax legislation under the Income Tax (Earnings and Pensions) Act 2003 that applies to individuals supplying services through an intermediary, usually a personal service company. Where a contractor is considered inside IR35, the engagement is treated as employment for tax purposes and the applicable PAYE and National Insurance contributions must be accounted for.

Question 8

Key Elements of the post-April 2021 Rules - Assignments Outside IR35

Accepted Answer

For an assignment determined to be outside IR35, the client must take reasonable care in reaching its decision. If reasonable care is not taken, the status determination statement may be invalid and the client may be liable for unpaid taxes. Where a valid outside-IR35 determination is made, the worker can continue providing services through their personal service company under a contract for services.

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