From April 2021, changes to the IR35 legislation came into effect that have an impact on the way businesses engage contractors. These changes had been expected to be implemented from April 2020, however, were delayed for one year as a result of the coronavirus situation. The changes were broadly in line with the legislation which had been introduced for the public sector in 2017. 

Whilst the government had announced in its Growth Plan issued in September 2022 that the changes would be reversed from April 2023, the Chancellor announced on 17 October that the legislation introduced in 2021 (2017 for the public sector) would remain in place.

 IR35 is a piece of tax legislation that is designed to tax ‘disguised employment’ – that is when an individual engages with a business through a third party, such as a personal service company (PSC) and in so doing receives tax benefits that they wouldn’t be able to enjoy if they were an employee.

Currently, in the private sector, it is the role of the PSC to determine whether the individual falls in, or out with, IR35 and to pay any increased tax but from April 2021 that assessment obligation will sit with the business that engages the contractor and the tax will need to be paid by the “fee payer”.

In short, this means that the changes to IR35 will shift the compliance burden on to the business that engages the contractor. It is also likely to increase cost. Should contractors be treated as employees for tax purposes, then the business which pays the PSC will be responsible for the tax burden. The changes to IR35 will have implications for medium to large businesses across all sectors particularly oil & gas, IT, financial services and construction.

Partner Fiona Herrell explains what changes are happening to the IR35 legislation in relation to the private sector and how the oil and gas sector can prepare for these changes - watch our video below to find out more.

The private sector has been given some breathing space to deal with the changes as a result of the coronavirus situation. Many businesses have already planned for the implementation of the new regime. However, businesses who have not finalised planning should do so in good time before April 2021. It is important to remember that it is not just an HR, tax or legal issue. It is a people issue that requires to be looked at through multiple lenses, and that's exactly how our cross specialist team here at Brodies approach the IR35 challenge.

Partner Karen Davidson explains who will be affected by IR35 and how they can prepare.

Our team will help you to identify the impact of the new rules for your organisation and work closely with you through the various stages of preparation from identifying the contractor population, reviewing arrangements with employment businesses, assessing and communicating contractor status - working with you to determine the best solution for your business.

Our team can also support you with communication around the changes and any training required so that you have the correct processes and procedures in place going forward.

IR35 key contacts