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What is IR35?
IR35 was introduced in 2000 to address concerns relating to individuals who supply their services via an intermediary (such as a Ltd Company) instead of as an employee, and therefore avoid paying employee income tax and national insurance contributions.
Where an assignment is deemed ‘inside’ IR35, PAYE deductions must be made from the contractor's pay.
Any assignment ‘outside' IR35 is classed as a genuine B2B service and is therefore not subject to the same tax treatment as employees.
Watch our video about IR35 for a deeper explanation.
So, what is changing?
From April 2020, following changes in the public sector in 2017, the government will be extending reform to the legislation to capture large parts of the private sector.
The key change is that the responsibility of defining the IR35 status of the assignment will switch from the individual’s Ltd company to the client, as the recipient of the services.
The requirement of the legislation states that all companies must take ‘reasonable care’ when assessing if roles are inside or outside of IR35. Taking a ‘blanket approach’ to assess all roles won’t deliver this.
The potential financial penalties can be significant if incorrect steps are implemented, but there is time and support available to help. We have urged our clients to take a calm approach, but also suggested they think about these changes and to act now.
Where should your business be in its journey to IR35 compliance?
We have suggested a timeline to support your approach below:
Companies should start capturing a full picture of their non-permanent workforce
Look at which solutions you can deploy to make yourself ready
Start implementing your chosen solution. There are a number available and we recommend a tailored approach.
With a solution in place you will be protected against the upcoming legislation. Set up processes to monitor ongoing compliance.
Did you know…
71% of public sector projects have been delayed or cancelled in the aftermath of the IR35 reform.
Did you know…
HMRC estimates that up to a third of workers operating via a PSC are incorrectly classifying themselves, leading to projected losses to the Treasury of approximately £1.2bn per annum.
Did you know…
IR35 is so named because of consecutively numbered Budget-related press releases issued by the Inland Revenue, i.e., the 35th Inland Revenue news release of the 1999 Budget.
Contractor UK - Contractor UK is home to the UK's IT contracting community.
Accountancy Age - Delivery of the latest news and analysis, intelligence and resources to UK accountants.
APSCo - The Association of Professional Staffing Companies - Providing firms involved in the recruitment of professional talent the specialist support and distinctive voice they need to be successful.
IPSE - The Association of Independent Professionals and the Self-Employed - Representing and supporting the self-employed.
Check Employment Status for Tax (CEST)
HMRC have developed an on-line tool called CEST which is designed to help to determine whether an assignment is inside or outside of IR35.
It consists of a series of questions about the contractor and their working practises.
HMRC guarantee that if the questions are answered truthfully and it gives an “outside” status, they will honour that, although they do recommend it is retaken at intervals (we would suggest every six months) to allow for changes in the role and enhancements to the tool.
The Government’s IR35 help service is also available if CEST does not provide a clear answer:
Phone: 0300 123 2326
However, it is up to the end-client to determine IR35 status and they may opt to use alternative tools/methods to make their decision.
Historically, CEST has been criticised by various industry bodies and lobby groups, so HMRC has now issued an updated version of the tool and additional guidance to help answer the questions accurately. The new tool is more user-friendly and allows users to save a CEST output, evidencing the determination for future audit purposes (which can also be used as a Status Determination Statement for the purposes of complying with the IR35 legislation). However, whilst HMRC stands by the tool, it is still viewed critically and it is widely questioned whether it produces outputs in-line with case law.
Ask a question about IR35
Fill in the form below and ask our IR35 expert Garry a question.
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