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IR35: what’s changing in the private sector?

When IR35 first came into force in 2000, each contractor was responsible for assessing their own IR35 status. Therefore, the contractor’s limited company or employment agency was responsible for paying any tax or National Insurance Contributions (NIC) due.

In 2017, the rules changed for the public sector, whereby the responsibility for ensuring the correct IR35 status shifted from the contractor to the public sector body engaging them. The rules for contractors in the private sector remained unchanged at this time.

On 6 April 2021, new IR35 legislation will come into effect for the private sector to align how a contractor’s IR35 status will be determined with the public sector.

It’s important to note that the test behind IR35 – the employment status test – isn’t changing; it’s the liability for ensuring compliance that will be different under the new rules.

Therefore, it is essential for end hirers and employment agencies, and contractors to be fully aware of the changes, the implications for their business, and how to ensure compliance.

When the IR35 changes come into effect in April 2021, the responsibility for determining a contractor’s IR35 status and paying relevant tax will be passed to the companies engaging them. In turn, what that means, is the engaging companies (e.g., end hirers or employment agencies) will be held liable should HMRC decide that status is incorrectly assessed.

However, the IR35 changes in the private sector exclude ‘small businesses,’ meaning that contractors working for them will continue to determine their own IR35 status for tax purposes.

For future guidance on the IR35 reforms in the private sector, download our guide for agencies and end hirers:

Download FCSA IR35 Guide

The government has also published guidance on ‘Understanding off-payroll working (IR35)’ on their website.