Contractors and freelancers will join pay-as-you-earn (PAYE) schemes from April 2021 after the government agreed to IR35 changes.
The controversial change puts the onus on employers to decide whether freelance contractors should pay National Insurance from next April.
Many self-employed freelancers argue the decision is unfair. They say while they are taxed like employees they don’t receive paid holidays or sickness pay.
How will IR35 changes affect me?
If you are currently a self-employed contractor or freelancer you assess your tax status. This will change from 6th April 2021 as the responsibility for deciding your tax status will shift to the company hiring you.
Contractors currently pay 20% tax, which is lower than PAYE rates and lower National Insurance Contributions (NICs).
Meanwhile, the business using their services does not have to pay National Insurance Contributions (NICs) for freelancers. The government argues that this is ‘disguised unemployment’.
HMRC claims that IR35 reforms will help bring in an extra £3 billion over the next four years.
The changes mean companies – apart from those with fewer than 50 employees or less than £10.2 million in annual turnover – will need to assess whether those they employ who work through a limited company.
That means most small and medium-sized businesses who use freelancers or contractors will not need to make any changes.
But if you are a contractor and work for a larger business, be aware that your taxes may change.
What do I need to do?
If you are a contractor or employ contractors and are beneath the thresholds mentioned above, nothing will change for you.
But if you are a contractor that is employed by a large company with more than 50 employees it is best to alert them soon. You may think avoiding the discussion is best, but it will be better if you know where you stand.
Large companies must now decide who is in our outside the rule and speak to contractors and freelancers. You may find that contractors increase their daily rates as they will effectively need to take a pay cut if they join your payroll.
If any contractors need to join your payroll, you will need to set up your HR and payroll system to add them. It will simplify the process and helps with your data analytics.
If you are unsure about IR35 and how it affects you or your business, contact us today for advice.
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