Private Sector IR35 Reform April 2021

What are the IR35 off payroll reforms? The IR35 off payroll reforms came into force in the public sector in April 2017, and the Government announced in Budget 2018 that they would be rolling out these IR35 reforms to the private sector in April 2020. The private sector IR35 reforms came into force in April 2021, after being delayed by a year due to the covid-19 pandemic.

We are compiling a list of companies and how they are going to manage contractors when the new legislation is implemented, you can view the list here - Company positions on IR35 private sector reform. If you have any information regarding your client's position on contractors let us know and we will add it to the list. All contributions will be treated in the strictest confidence.

What is IR35?

IR35 affects all contractors who do not meet HMRC’s definition of self-employment. The legislation was designed to stop contractors working as ‘disguised employees’, by taxing them at a rate similar to employment.

There are increased risks and responsibility that come with contracting, and lack of employee benefits, which is why contractors benefit from tax advantages. Therefore if you are deemed to be working as a contractor without accepting the increased responsibilities you will not be entitled to these tax advantages.

What does IR35 private sector reform mean?

Under the previous IR35 rules, contractors were responsible for determining their own IR35 status and the risk of non-compliance lay with them, however from April 2021 the legislation puts the burden of responsibility on the entity that pays the contractor. This is a new tax burden on all client-businesses engaging contract workers in the private sector, with the exception of small companies.

If a client decides IR35 does apply, the contractor business will be taxed at source exactly as if it were an employee. Although contractors impacted by this measure may have to pay tax like an employee, their employment status will not change, so they will not receive the rights and benefits that go with employment.

The changes were due to come into place in April 2020 and as it drew closer to this date many businesses such as Lloyds, Barclays, Tesco Bank, GSK and HSBC made decisions about how they were going to engage with their contractors from that point onwards.

However in March 2020 the government delayed private sector IR35 reform until April 2021 due to the coronavirus pandemic.

Will IR35 reform be repealed from April 2023?

Unfortunately the IR35 reforms will not be repealed from April 2023.

In the Mini-Budget of September 2022, the UK government announced fundamental changes to IR35, repealing the public sector IR35 reforms of April 2017 and the private sector IR35 reforms of April 2021. However, on 17th October 2022 the new chancellor Jeremy Hunt reversed the government’s pledge to repeal IR35 reform.

Further news and guides on the private sector IR35 reforms can be found below.