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Intermediaries legislation, or IR35, has been in effect since April 2000 in order to combat tax avoidance in the UK.

IR35 aims to underline the difference between a legitimate self-employed worker and a ‘disguised employee’ in order to identify cases of tax avoidance.

IR35 status has received a lot of media attention, in particular with the recent Uber trial. It saw two freelancers of the taxi app actually being treated as employees, without receiving any of the benefits.

How IR35 determines a self-employed worker from a ‘disguised employees’ has come under fire by contractors ever since its inception, with constant calls for it to be changed or axed. While IR35 hasn’t been dismissed by the government, the 2015 Summer Budget confirmed that changes will be made to the legislation.

What are the changes?

The main change to the legislation is who will determine the status of IR35. Previously, the contractor or self-employed worker were responsible for determining their own IR35 status. From April 2017 this responsibility shifted to the end client. At the time of writing, this will apply only to the public sector, though a private sector rollout is in the pipeline.
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The changes have only been presented as a draft, but essentially the process includes:

In short, the worker found to be within IR35 will become almost an employee of the end client for tax purposes. This means they will not receive any employee benefits such as holiday pay or sick pay, but will continue to operate through their own limited company.

Unsure about what the changes will mean for your IR35 status? Get in touch with a member of our team on 020 3355 4047, or read more about our online accountancy services for contractors

About The Author

Lee Murphy

MAAT and ICPA accountant, with a passion for making accountancy and bookkeeping accessible. Other interests include cloud-based software development for web and mobile access, keeping fit, reading, and entrepreneurship.

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Matt Hawkins
Matt Hawkins
17th December 2016 12:33 am

Hi Lee

This is certainly an area of interest to public sector contractors such as myself, having spoken to other colleagues and recruiters their view was mixed on the potential impact of this. Some have have said they will continue to operate as they were before the changes and others are a little more cautious (the consensus being that they wont eradicate contractors in the public sector). Personally, I would question if the motivation behind this is to increase the numbers who are PAYE, given that many have set up their own businesses away from the public sector?

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