IR35 is the latest piece of legislation that will affect the contractor landscape.
The rules for the taxation of those individuals providing their services through a personal service company (PSC) introduced under IR35 will be changing from April 2020. Changes to how IR35 is applied in respect to the provision of off-payroll working in the Public Sector were made in 2017. The intention is to make ‘similar’ changes for the Private Sector.
Given the dependence of many large companies on short-term contractors, we strongly recommend that companies who engage contractors start making arrangements right away – to ensure you are ready to take on the new responsibilities in April 2020.
What is the purpose of IR35?
IR35 was introduced with the intention of ensuring that where individuals are operating via a PSC, they were paying the correct levels of income tax and national insurance, relative to their employment status. The basis of the legislation is to assess the nature of the direct relationship between the end client and worker (effectively removing any intermediaries).
From April 2020, the responsibility for confirming the IR35 status of an individual will move from the PSC to the end client. The end client will need to demonstrate that “reasonable care” has been taken when making the decision.
Where do any tax liabilities lie?
Where an employment type relationship is indicated, any income paid from the PSC should be subject to the appropriate income tax and national insurance contributions. As it currently stands, where a PSC is operating in the private sector, it is the responsibility of the PSC to determine whether the assignment is caught “inside” or “outside” of IR35.
If HMRC disagree with the PSC’s initial determination and cannot reach agreement with the PSC, then the tax tribunals/courts would decide the position. If it is found that the PSC has paid the operative incorrectly, then currently, any resulting tax liability would fall upon the PSC.
What changes are being made to the way IR35 legislation is implemented?
From April 2020, the responsibility for confirming the IR35 status of an individual will move from the PSC to the end client. In addition to this, the end client will need to demonstrate that “reasonable care” has been taken when making the decision with the potential for the tax liability reverting back to the fee payer or end client where an incorrect decision has been taken by the end client.
HMRC suggest that clients can use their CEST (Check Employment Status for Tax) tool to establish the IR35 status for individual, however numerous flaws to its binary approach, have been highlighted since it was launched, to support the Public Sector changes, in 2017.
In the table on the following page, we have compared the CEST tool with an independent review, provided by an employment law specialist such as Weightmans LLP. In the comparison we have outlined some areas that we believe you should consider when deciding on which employment status process your organisation will adopt ahead of April 2020. We feel that by ensuring that you have considered each of these points, it will allow you to demonstrate that "reasonable care" has been taken when implementing your employment status process.
It is important to understand, that the way in which IR35 is assessed will not change, meaning current methods for establishing employment status such as contract and working practices reviews, carried out by employment law specialist’s, will provide end clients with a means to compliantly support their contractor workforce.
As the 2020 deadline approaches this guide has been created to help you navigate the changes that may impact your business. Recordings and commentary from our latest IR35 forum give insight into:
- How to avoid costly legal challenges
- Ensuring your contracts are compliant
- Reducing the numbers of contractors that leave your organisation
- Liaising with your contractor population to provide a consistent message.
- Getting equipped with the right tools and partners to compliantly support your organisation and contractor workforce
The e-book concludes with questions put to the panel by end clients who operate in the private sector. Their questions, and the answers provided, give real insight into the queries and concerns of business professionals who will be directly affected by IR35.
In our role as a specialist recruitment provider, The Bridge IT and Morson Group has the appropriate expertise to assist you to ensure your business is compliant with any changes to IR35 and can support you with your full review of the contractual workforce.
This guide has insights from the Morson Group in-house compliance expert, Phil Beardwood, and our partners Champion Contractors and Weightmans LLP who specialise in dealing with agency/IR35 matters and are fully up-to-date with the intended changes in the Private Sector. Download your copy or contact IR35@morson.com for more information.