Some self-employed workers will have to start paying tax differently next month, as IR35 changes come into force. The private sector reform was due to take place in April last year but was delayed because of the Covid-19 pandemic. The move will affect both contractors and the companies that hire them. It is designed to clamp down on contractors who essentially operate in a similar way to employees but work through limited companies for tax purposes. Under the reforms, medium and large private businesses will become responsible for judging whether their contractors fall inside or outside the scope of IR35, rather than the workers themselves. If a contractor provides services to a medium or large-sized private sector client, they:

• Should get an employment status determination from the client, as well as the reasons behind that determination
• Will be able to dispute the determination given to them if they disagree with it

There is no change to the rules for contractors providing services to small businesses in the private sector. The changes are a way for the Treasury to make more money through National Insurance contributions. Employees of a company must pay 12% National Insurance on earnings between £9,500 and £50,000, and 2% on earnings above this, with employers also contributing 13.8% in payments above the £9,500 threshold for each employee on their payroll. However, self-employed contractors pay class two NICs of £3.05 a week on earnings between £6,475 and £9,500, class four contributions of 9% up to £50,000, and 2% on anything over this. This works out to a lower tax bill than if they were employees.

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