IR35 and reverse VAT rule changes

IR35 and reverse VAT rule changes

Significant changes to the rules on IR35 and on the VAT reverse charge for building and construction services will be introduced next year.

IR35 legislation was originally introduced in April 2000 to ensure that workers who provide their services through an intermediary – such as a limited company, personal service company, agency or partnership – but who would be an employee if they were contracted directly, pay the same amount of tax and National Insurance as employees.

From 6 April 2021, the responsibility for determining a worker’s status will be extended to all medium and large organisations in the private sector that meet at least two of the following conditions:

  • Annual turnover of more than £10.2 million
  • Balance sheet total of more than £5.1 million
  • More than 50 employees

If the parent of a group meets these conditions, any subsidiaries will also have to apply the off-payroll working rules.
Smaller organisations in the private sector that do not meet these conditions will not have to determine the employment status of any workers employed through an intermediary. This will remain the responsibility of the worker’s intermediary, together with any associated payroll obligations.

Build UK have produced a very helpful guide to the IR35 changes which can be accessed here.

The latest government guidance (from 15th October), along with opportunities to register for online webinars and workshops, can be accessed here

VAT reverse charge for building and construction services

From 1 March 2021 the domestic VAT reverse charge must be used for most supplies of building and construction services.

The charge applies to standard and reduced-rate VAT services:

  • for individuals or businesses who are registered for VAT in the UK
  • reported within the Construction Industry Scheme

The government’s most recent guidance, published on 24th September, is available here