The proposed changes to IR35 in the private sector
Otherwise known as ‘off-payroll’, these changes will affect the way contractors who operate via Limited companies are paid. It’s all about a piece of tax legislation that was introduced by HMRC in an attempt to combat tax avoidance from those supplying services through an intermediary but who would otherwise classify as an employee if the intermediary was not used.
Across the private sector, at the moment, it is the contractor’s responsibility to determine whether their role sits ‘inside’ or ‘outside’ IR35. If they are inside, they would be deemed to be a disguised employee and thus, subject to tax and National Insurance contributions. The changes mean this responsibility of determining employment status will transfer to the company - they will also be legally required to ensure their contractors are paying the correct taxes.
HMRC use a number of factors to assess if a role is inside or outside the Intermediaries Legislation (IR35) including, but not limited to;
- Personal Services
- Mutuality of Obligation
- Right of Substitution
- Financial Risk
- Right of Control
Who is due to be impacted?
Contractors working via a limited company/personal services company. This will also have an impact on the end clients as ‘reasonable care’ is required in assessing every role. Companies have been advised not to take a ‘blanket’ approach to their assessments as this would be deemed to be outside.
Exceptions to this
The changes will not apply to companies that are classified as a small organisation:
- Net turnover less than £10.2m
- Balance sheet totalling less than £5.1m
- Fewer than 50 employees
Businesses will need to apply complex employment status tests to decide whether a contractor is genuinely self-employed or not.
The best way for employers to decide whether their contractors sit inside or outside IR35 is to use the HMRC’s recommended tool: HMRC’s Checking Employment Status Tool (CEST).
As everything seems to be on course, it is expected the legislation will be announced in the 2019 Autumn Statement in preparation of being introduced in April 2020.
There will be changes to the way contractors are engaged and paid but contracting will continue to offer its benefits, in terms of flexibility, variety of experience and in the majority of cases premium rates when compared to permanent salaries.