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In brief

Having been delayed by the government at the eleventh hour last March, there are now less than 70 days to go until the new rules on IR35 are introduced.

As a reminder, the revised rules impact how contractors who are engaged through personal service companies (PSCs) are taxed and impose a greater administrative burden on the companies that engage them. The key test for IR35 (both now and under the revised rules) is; would a contractor be an employee if they were engaged directly? If so, the contractor is within IR35. From 6 April 2021, large and medium-sized companies that engage workers via PSCs will be responsible for:

  1. Determining whether a worker falls within IR35 (the Status Determination Statement)
  2. Applying PAYE and employee and employer NICs on the payments made to the PSC if they are paying the PSC directly and the arrangement falls within IR35
  3. Implementing a process for both the worker and the Fee Payer (where the PSC is not paid by the engaging company) to dispute the Status Determination Statement

The new rules will apply regardless of whether the company engages with PSCs directly or through other intermediaries, such as agencies.

In order to prepare for the changes, companies should ensure that they:

  1. Can identify PSCs in their supply chain – which can be more tricky than it sounds
  2. Put processes in place to make the required status determination and to ensure that the requirements of the challenge process are met
  3. Have appropriate contractual provisions in place with agencies/PSCs
  4. Implement any required changes to working structures
  5. Put processes in for payroll deductions or ensure that payroll deductions can occur where appropriate

As previously reported, there have been a couple of changes to the new rules since their delay last March including limiting the application of IR35 to any client receiving the services of the contractor with a UK connection (i.e. residents or those with a PE in the UK immediately before the start of the relevant tax year).  The residency of the PSC and any other intermediary are not relevant for whether IR35 applies, but could impact how IR35 applies. For more information regarding the changes that the government has made to the proposed rules over the last 12 months, please click here.

HMRC has also more recently updated in guidance pages in preparation for the new rules coming into effect on 6 April 2021. Please click here to see our recent client alert for more information.

With the deadline fast approaching, please do get in touch with a member of the Employee Benefits team if you have any concerns regarding the changes to IR35 and how it may impact your business.


Jeremy Edwards is a partner and the head of the Employee Benefits Group in Baker McKenzie’s London office. He advises on all aspects of employee share plans and employee taxation. Jeremy has over 20 years’ experience as a share plan lawyer and two years’ experience as a corporate lawyer. He is currently serving on the advisory panel of ProShare and is a regular speaker at share plan conferences held in the United Kingdom.


Gillian Murdoch is an associate in Baker McKenzie's London office. Gill qualified in the employee benefits team in 2014 after joining the firm as a trainee in 2012. Gill was named as a "Next Generation Lawyer" by Legal 500 in 2017.


Victoria Kirsch is an Associate in the Employee Benefits Group, part of the Employment Department of the London office of Baker McKenzie. She is a member of the Firm's Global Labour Employment and Employee Benefits Practice Group that provides advice upon related corporate, tax and labour law issues.