What you need to know about the Private Sector and IR35

Over the course of 2019 and 2020, the Gattaca Group of companies will be engaging with all key customers to support them on the coming IR35 legislative amendments. 
 

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 (NIC).
• Any individual deemed ‘inside’ IR35 (who is therefore considered to be operating in the same way as an employee for tax purposes, rather than on a self employed or consultancy basis) must pay income tax and NIC contributions.
• Any individual deemed ‘outside’ IR35 is classed as providing a genuine business to business service and is therefore not subject to the same tax treatment as employees.
•  HMRC estimates that up to a third of workers operating via a personal services Ltd Company are incorrectly classifying themselves, leading to projected economic losses to the UK Treasury of approximately £1.2bn per annum.
   

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.
• It is anticipated that all companies which meet any 2 of the following criteria will need to comply with the legislation:

1. Have more than 50 employees;
2. Have an annual turnover of more than £10.2 million;
3. Have balance sheet assets of more than £5.1 million.
    

What is the practical relevance of the reform?

Legislation is yet to be finalised - HMRC produced a consultation document on the 5th March 2019, which set out details of the proposed regime for comment – based on this, we expect the following key implications:

• The responsibility of making an IR35 status assessment will shift from the Ltd Company (i.e. the worker) to the end client.
• Where a worker is assessed as ‘inside’ IR35, the party who pays the worker is responsible for paying employers’ NIC, and for deducting income tax and employees’ NIC.  This will either be the end client or the agency. 
• The legislation places the onus onto the end client to inform the agency if the assignment is inside or outside of IR35 (i.e. the assessment is conducted on the role rather than on the individual) and provide reasoning for this assessment.
   

What happens now?

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 as inside/outside is unlikely to meet the requirement to exercise reasonable care.

Whilst the potential financial penalties can be significant if incorrect steps are implemented, there is time and support available to help, and we have urged our clients to take a calm approach to these new legislative amendments in recent communications.  But we have also suggested they think about these changes and to act now or contact us for more support.

We have been advised there is evidence that some pressure is being applied to end clients by existing workers, requesting them to implement changes that may or may not be compliant to the legislation.  As a Group of companies, we will be following a structured approach and working with industry leading partners based upon:

• Education
• Risk assessment
• Practical guidance
• Planning
• Executing any change

If you would like our support or pointing in the direction of independent advice, please click here.