The off-payroll working rules, otherwise known as IR35, have proven controversial since they were introduced in 2000.
Following reforms to the way the rules apply in the public sector in 2017, they’ve received even more media attention. HMRC’s rulings have been challenged several times in high-profile court cases, by IT contractors and national television presenters alike.
As it stands, major changes to IR35 are set to extend to the private sector from 6 April 2020, meaning many more contractors and businesses could be affected.
What is IR35?
IR35 is the term often given to a set of tax rules that allow HMRC to prevent what it considers to be ‘disguised employment’.
This is where someone works in essentially the same way as an employee, but provides their services through an intermediary – such as a personal service company – in order to avoid paying the same tax and national insurance as an employee would.
Under IR35, a set of rules must be considered to determine whether someone is employed or self-employed for tax purposes.
If the rules suggest the person is working as if they were employed, tax and national insurance contributions must be taken from their fees and paid to HMRC.
At the moment, workers in private-sector contracts are responsible for determining their own employment status under IR35.
From April 2020, that responsibility is set to move to the organisation that’s engaging the services.
The change applies to medium and large-sized businesses, so small businesses that hire contractors can continue operating as before.
Calls for delay
With many already struggling to cope with political uncertainty and upheaval, business and contractor groups are calling for the Government to delay the extension of IR35 for a year, until April 2021.
They’ve said those affected will not have enough time to prepare if the measure goes ahead in 2020, only a few months after the UK’s planned departure from the EU.
Others say the rules themselves are unfair, and that they could end up punishing people who are genuinely self-employed, especially if businesses decide to use blanket determinations or stop working with contractors altogether.
What you need to do
Whether or not a delay could take place, the extension is set to go ahead next year and it’s important to prepare.
If you’re working through an intermediary, it may be helpful to look at your current working practices to see if you’re likely to be affected. HMRC’s check employment status for tax tool can help you to work out whether the rules might apply to you.
If you’re the owner of a medium or large-sized business and you engage workers through intermediaries, you’ll need to get ready to apply the off-payroll working rules to every contract you agree.
Contact us for help preparing for IR35.