HMRC’s off payroll working rules, commonly known as IR35 are due to change in April 2020, with the public sector rules introduced in 2017 being extended to cover most of the private sector.
This is a general overview only and is not legal advice, so if you have any concerns you should take advice from an appropriate professional.
What is IR35?
IR35 governs the tax treatment of payments for supplies of individuals’ services through an intermediary (the Intermediary) in which they have at least a 5% “material interest” – think share ownership, voting rights and so on. In construction, IR35 most commonly applies to so-called personal service companies.
If those circumstances apply, it’s necessary to consider the relationship between the individual who supplies their services (the Worker) and the business that benefits from them (the Client), applying the various employment status tests.
If, on balance, the Worker looks more like an employee of the Client, then the contract is ‘inside IR35’ – IR35 applies and payments made to them are subject to PAYE tax and class 1 national insurance contributions (employment taxes).
As you can imagine, this is not an exact science. Under the current rules, the liability for getting IR35 determinations wrong falls primarily on the Intermediary.
While there are several things to consider, there are two pressing IR35 changes to focus on. Firstly, the Client will have a positive obligation to assess its arrangements with Workers to determine whether or not IR35 applies. The Client will also need to make a statutory declaration specifying whether or not IR35 applies and the reasons.
The second major change is that the liability for getting IR35 determinations wrong will no longer fall on the Intermediary. Instead, liability will fall on various parties in the contractual chain depending on the circumstances, including the party that engages the Intermediary (the Fee-Payer).
IR35 is, of course, highly complex and disagreements are bound to occur, so a review process should be an important part of your response to the new rules.
As is hopefully clear, the new IR35 rules will require additional compliance processes for most businesses. You should take care to understand the new rules and comply with them because your failure to do so may result in liability for IR35 landing at your doorstep.
The Small Business Exception
So much for what’s new – as ever, there are exceptions. The new IR35 rules will apply to Clients who meet at least two of three criteria.These are: more than 50 employees, more than £10.2 million annual turnover and more than £5.1 million assets on the balance sheet.
If the Client does not meet those criteria, then the old IR35 rules continue to apply. You should consider whether or not the rules apply and advise the other parties in the chain.
Contact The Guild today to talk about how IR35 reforms may affect your business.