The changes to IR35 legislation are fast approaching, coming into effect in the UK private sector, which includes the Biotech and Life Science industry, at the start of the new tax year on the 6th April 2021. These changes are designed to collect Income Tax and National Insurance and reduce tax avoidance by contractors, who are believed to be “disguised employees”.
Those affected by the changes to IR35 are:
- Workers who provide their services through an intermediary.
- Businesses who receive services from a worker through an intermediary.
- Agencies providing workers’ services as an intermediary.
The UK Biotech and Life Science sector is teeming with companies of all sizes operating at the cutting edge of their respective fields. Importantly for the sector, the IR35 rules only apply to companies of a certain size, therefore many start-ups and early-stage VC backed business who utilise the expertise of consultants and interims may fall outside of the rules.
HMRC Designation of a Small Company
HMRC have stated that IR35 will only apply to medium and large companies not small businesses, to be classed as a small business it must meet two of the three criteria listed below:
- Turnover of less than £10.2m.
- Assets of less than £5.1m.
- Have less than 50 employees.
If a business is not small company exempt, they are required to undertake an Assignment Determination to understand the status of any assignment for tax purposes.
If the IR35 rules apply, Income Tax and employee National Insurance contributions must be deducted from fees and paid to HMRC. Businesses must prove certain criteria to show that there is no employment relationship to determine whether an assignment is ‘inside’ or ‘outside’ IR35, there are three key factors.
Assignment Determination factors:
Mutuality of obligation
As a self-employed contractor means working on a project-by-project basis for multiple clients.
If a client’s contract does not allow substitution and the engaged contractor must complete the entire project, this could fall within IR35 rules.
Supervision, direction, control
Contractors must have control over how they complete their assignment which could indicate the assignment falls outside of IR35.
We are Here to Help
PIR International has an established reputation in the provision of seasoned interim professionals. Since 2005, we have been trusted by Life Science companies to deliver technical and leadership expertise to support their success; to start a new venture, bridge a skill gap, deliver a critical scientific or commercial milestone and to develop and mentor high potential aspiring leaders.
If you are an organisation or contractor who is unsure about how the upcoming changes affect you, then get in contact with us via email: firstname.lastname@example.org. Our experienced team will be able to provide clarity on the legislation and help with any uncertainties you may have.