In April 2017, the Government introduced substantive changes to the intermediary rules (IR35) in the public sector. The Government then announced an intention to implement the same rules in the private sector with effect from April 2020.

As a result of the pandemic, this was delayed to April 2021. HMRC has now updated the Employment Status Manual with more information about the application of the rules in the private sector.

We have previously reported on the introduction of the intermediary rules in the private sector. In brief, the effect of the rules is that independent contractors contracting through an intermediary (for example, a personal service company) are taxed as employees, where the nature and conditions of the work undertaken would amount to an employment relationship with their client in the absence of that intermediary. The onus of compliance shifts so that it is the client, rather than the contractor.

It remains the case that the rules are due to come into effect in the private sector in April 2021. The Employment Status Manual has been updated to confirm:

  • The rules shall take effect where the services and the payment are both made after 6 April 2021. Where some of the services are provided both before and after this date, and payment is made after this date, it will be necessary to carry out a just and reasonable apportionment.
  • The rules apply to medium to large entities, including charitable entities. The rules will not apply to small entities. A corporate entity is medium or large sized where it meets at least two of the following criteria for two consecutive financial years:
    • turnover of more than £10.2 million
    • a balance sheet total (assets) of more than £5.1 million
    • an average of more than 50 employees
  • It is the size of the end client (ie the entity which receives the services) which is relevant.  This means that agencies and other entities in the chain will be affected by the rule change, regardless of their size.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.