IR35 and Exemptions
Are small companies exempt from IR35?
The private sector IR35 regulations that were introduced in April 2021 do not apply to certain businesses due to exemptions granted under the off-payroll legislation. When working for a small client, the original rules still apply, and the worker is responsible for assessing their status and the resultant tax liability.
More detail
Under the new rules, small companies are exempt from IR35. When working for a small client, the original rules still apply, and the worker is responsible for assessing their status and the resultant tax liability.
A company is classified as small if it meets two of the following criteria:
- having fewer than 50 employees
- a turnover less than £10.2 million
- a balance sheet total not exceeding £5.1 million
A small company has no statutory obligation to conduct status determinations and is not liable for taxes if the engagement is considered deemed employment. If a company meets these criteria, the off-payroll legislation does not affect them. The responsibility for assessment and taxes remains with contractors under the original legislation.
Small companies planning to grow or prepare for a sale should consider off-payroll legislation, especially if contractors are central to their operations. Being proactive can help mitigate compliance risks as the business expands.
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