What is IR35?

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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.

 

 

 

What do companies need to do about IR35?

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. 

 

 

 

 

How long do I have to become IR35 compliant?

IR35 reforms for the Private Sector are due to be implemented in April 2020, and it's important organisations are ready by this time and beyond.

 

Where should your business be in its journey to IR35 compliance?

We have suggested a timeline to support your approach below:

 

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Recruitment & Employment Confederation (REC) - The REC provides recruitment businesses with a wide range of training, legal, business and accreditation services.

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.

HMRC - April 2020 changes to off-payroll working for clients

HMRC - April 2020 changes to off-payroll working for intermediaries

HMRC - Off-payroll working for agencies

HMRC - Fee-payer responsibilities under the off-payroll working rules

 

 

 

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 “out” status, they will honour that, although they do recommend it is retaken at intervals  (we would suggest every 6 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:

Email: ir35@hmrc.gov.uk
Phone: 0300 123 2326
Web: https://www.gov.uk/guidance/ir35-find-out-if-it-applies   

However, it is up to the end-client to determine IR35 status and you may opt to use alternative tools/methods to make their decision.

CEST has come in for a lot of criticism from various industry bodies and lobby groups and the Government has stated that it will be making improvements to the tool and issuing further guidance prior to April 2020. We have recently met with HMRC to view and provide feedback on the revised tool and guidance, which are due to be released by the end of 2019. HMRC has confirmed that they will continue to stand-by determinations provided by the existing CEST tool.

 

 

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