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IR35 and Tax Status of Consultants

IR35 is now a reality and should be integrated into the day to day practices of any organisation. Amended in April 2021, it completely changed the way in which businesses utilise contractors.

As a result of the changes, the responsibility for identifying the employment status of an individual has transferred to the end user employing them. Failure to correctly identify a worker against the IR35 criteria could lead to difficulties with HMRC, including heavy financial levies which are likely to increase as the implementation of IR35 becomes more commonplace.

For advice and support regarding the implications of IR35 on your organisation and the way in which you use consultants, please contact a member of the BPE Commercial Team.


What is IR35?

Simply put, IR35 tightens the parameters within which an individual is classified as a ‘consultant’ or a ‘worker / employee’. IR35 aims to deal with what HMRC believes is “disguised employment” whereby individuals are employed through an intermediary or personal service company rather than being employed directly by the end user. As a result of this set up, the individual gains tax benefits despite completing similar work to employees.

The obligation on the end user to identify the employment status of an individual can lead to increased workload due to the greater administrative demands, both in respect of additional checks and paperwork and potential subsequent payroll processing.

Who Does IR35 Apply to?

Any medium and large-sized business that satisfies two or more of the following criteria:

  • An annual turnover of more than £10.2 million,
  • A balance sheet total (i.e. total assets before deducting liabilities) of more than £5.1 million, or
  • More than 50 employees

If a business does not meet at least two of the above conditions, the rule changes do not apply and the decision to classify as an employee is left with the individual.

What Do You Need to do as a Business?

If you are worried about an individual being caught by the rules, we recommend reviewing the terms of your contract with them to assist with determining their employment status.

For more helpful guidance on what to do as a business, please see our article “IR35 is here. Hints and tips on getting it right”.

If you are unsure of how to class an individual, you require assistance with reviewing or amending a contract to appropriately reflect the rules or you are querying how these regulations will apply to your business, please contact a member of the BPE Commercial Team.

For further information on what IR35 is and who it applies to, click here.

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