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Changes to IR35 – Proposed off-payroll rules

The UK government has released their detailed plans for the off-payroll private sector reform. This will affect contractors working through limited companies, recruitment agencies and medium and large companies. The new IR35 rules are as follows.

How will IR35 changes affect me?

It is proposed that from April 2020, IR35 reforms will be introduced in the private sector. This will mean that medium and large companies will be responsible, and often liable, for setting the IR35 status of the contractors they work with.

These proposals resemble the ones that were introduced in the public sector two years ago. Currently, the rules are as follows:

IR35 and public sector contractors

If a contractor is currently working within the public sector, it is up to the end-client to determine their IR35 status. Once the end-client has done so, it’s the client’s job to let the “fee payer” (usually the supplying agency) know whether the contract should be paid net or gross of tax.

IR35 and private sector contractors

If a contractor is currently working within the private sector, it’s up to them to determine their own IR35 status and bear the tax risk should they get it wrong.

Proposed changes to IR35 in April 2020

From April 2020, all contracts will have their IR35 status determined by the end-hirer (i.e. your client). If your contract is in the private sector, it will no longer be your responsibility to determine your own IR35 status.

Therefore, like in the public sector, a contractor’s engager – otherwise known as the end-client – will be tasked with assessing the IR35 status. As part of these new IR35 rules, the liability, which currently lies with the contractor, will be passed over to whichever party is the fee-payer in the labour supply chain.

The shift in responsibility has got some end-hirers nervous about April 2020 and there are concerns that some may make moves towards deeming all contracts to be within IR35 to protect themselves from any associated tax risks.

It is mandated by HMRC that all IR35 decisions are to be conducted on a case-by-case basis and blanket determinations are not compliant.

Changes will not apply to small companies

If you’re a contractor working with or for a private sector company considered “small” by HMRC, the new IR35 reform will not impact you. You will carry on setting your own IR35 status and continue carrying the liability.

As per the Companies Act 2006, a “small” company is defined as a company with:

  • An annual turnover of up to £10.2 million

  • Balance sheet assets of up to £5.1 million

  • Average number of employees of up to 50

 

Who will carry the liability?

HMRC is authorised to investigate tax compliance of organisations. This power will now extend to allow them to explore the employment status of any off-payroll workers providing their services to private sector clients.

Where it is found that an individual has been incorrectly categorised as being outside of IR35, HMRC will issue a determination requiring the unpaid PAYE tax and National Insurance contribution liabilities, including any late payment fines and interest, to be paid by the fee-payer.

What happens next?

At this time, we cannot recommend any single course of action as we recognise that each contractor’s circumstances could be different. We will closely monitor developments to help prepare options for our clients.

If you haven’t done so already, please get in touch with either your agency or your end-client to discuss how their organisation will be dealing with the impending changes.

We recommend contractors use the period before April 2020 to prepare for the changes with information from their clients, agencies and trusted Sable International partners.

We offer specialist, personalised, end-to-end accounting and tax advice

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