Please note, on the 18th March 2020, the Government announced a 1-year delay to the off-payroll working rules (IR35) reform as part of their response to COVID-19.
As a result, the reforms will now come in on 6th April 2021. You can read the full announcement on the GOV.UK website.
From April 6th 2020, IR35 rules (known as the off payroll working rules) are changing, with the Government bringing the legislation in line with those that are already in place within the public sector.
The changes will primarily impact freelancers and contractors who are working in the private sector, and also companies that choose to employ these types of workers.
The new rules have sparked confusion amongst contractors, with many feeling unprepared for the changes. Find out more about what’s changing and who it affects in our latest blog post.
What Is Changing?
Under the current IR35 anti-avoidance tax legislation, freelancers and contractors working in the private sector for a limited company, recruitment company, personal service company (PSC) or other intermediary can decide whether or not IR35 applies to them by determining whether they are self-employed or employed.
However, from April 2020, the onus will be on the companies hiring external contractors to determine whether or not IR35 applies or not. Should IR35 apply, then the company is responsible for deducting tax from your pay.
Many contractors fear that the new administrative time and costs that companies will incur to determine and manage IR35 statuses might discourage companies from using their services.
Who Do The New Rules Apply To?
These changes will apply to all medium and large sized private sector companies that meet 2 or more of the following:
- Have an annual turnover of more than £10.2 million.
- Have a balance sheet total of more than £5.1 million.
- Have more than 50 employees.
The new rules do not apply to small businesses and when working with these businesses, a contractor is still responsible for determining their IR35 status.
Why Are These Changes Being Made?
IR35 is a piece of anti-avoidance tax legislation which was created in a bid combat contractors and companies who are using the current conditions to their advantage.
Due to the associated tax benefits, some contractors decide that IR35 does not apply for them, whilst enjoying guaranteed employment and fixed hours at a company, a regular employee in every aspect but name.
For companies, some are using the current rules to their advantage by building up complete workforces of freelance staff and contractors who act as regular employees, meaning that they don’t have to pay National Insurance contributions for the worker or offer them employment benefits such as sick pay.
What the Changes Mean For:
From April 2020, employers will be responsible for determining a contractor’s IR35 status through a ‘status determination statement’.
Employers will also need to ensure they keep detailed records of employment status determinations and have a process in place to deal with any disagreements with their decision.
Companies will be fined if they get this wrong, but HMRC has advised that they will exercise lenience in the first year.
Contractors / Freelancers
Contractors will now be reliant on the company to determine their IR35 status. Should a contractor disagree with the companies’ decision, they will need to challenge it in writing.
When working with small businesses, contractors will need to determine their IR35 status, meaning they could find themselves doing both types of work.
How Do I Know If IR35 Applies to a Contractor I Am Employing?
If you are unsure, you can use the check employment status for tax calculator from GOV UK to assess whether or not a contractor will fall into IR35. HMRC also have an IR35 helpline which can be reached on 0300 123 2326.
I’m a Contractor, How Do I Know If I’m Affected?
If you’re a contractor and aren’t sure whether or not this change applies to you, the first step is determinining whether your client meets 2 of the criteria outlined above. If they do, then they will be responsible for your IR35 status going forward.
If the new rules don’t apply, you will continue to determine by yourself whether or not IR35 applies to the work you are undertaking.
If you are still unsure, contacts HMRC or call with IR35 helpine on 0300 123 2326.
Talk to The Experts
If you’re a contractor or business that is confused about IR35 and what it might mean for you, we can help. For more information, give one of our expert team a call today on 0117 379 0810 to arrange a free no obligation consultation.
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This post was written by Steph Roffey