What is known as IR35 relates to anti-avoidance tax legislation designed to tax ‘disguised’ employment and applies to medium or large businesses engaging workers who operate through personal service companies (PSCs).
Since 6 April 2021, medium and large-sized businesses have been required to review the employment status for contractors engaged through PSCs given they may be treated as employees for tax purposes.
The company benefitting from the services (the ‘end user’) is responsible for determining the deemed employment status of any individual engaged through a PSC and for communicating this in a written statement.
For engagements that are treated as employment under these rules, the entity that pays the PSC’s fees - either the end user or an agency - will need to operate PAYE withholding on all payments and pay employer’s NIC on the gross amount invoiced excluding VAT. Payments within IR35 will also be brought into Apprenticeship Levy calculations.
To avoid any penalties, businesses will also need to be able to show that they have taken reasonable care to comply with these rules: for example, by ensuring robust procedures are in place, reviewing engagements on a regular basis and seeking professional advice when needed.
You can read more about IR35 here.