If you’re a business owner or self-employed worker sheepishly avoiding eye contact with anybody who brings up IR35 in conversation, you aren’t alone. A survey carried out by Sullivan & Stanley consultancy revealed that 71% of UK businesses don’t know about the changes to IR35.
What’s happening with IR35 in 2020?
On 6th April 2020, legislation comes into force within the private sector to tackle what the taxman has dubbed ‘disguised employment’, targeting self-employed contractors and freelancers who are used so frequently by a company that they may as well be on the payroll system.
HMRC’s concern is that without IR35, off-payroll contractors who are hired as though they were staff are unfairly exempt from paying the same tax and National Insurance Contributions that their full-time counterparts are subject to, despite working in almost identical ways.
The rules were implemented within the public sector back in April 2017, and raised an impressive additional £550 million increase in Income Tax and National Insurance contributions in the first 12 months. As of the start of the new tax year, they will also be applied to private businesses where services are provided on or after 6 April 2020 (rather than when the payments are made).
Who is responsible for assessing if IR35 applies?
The responsibility for assessing a contractor’s IR35 status (and for deducting tax and NICs) depends on the end client, which means a public sector business and some private sector businesses are responsible for deciding a contractor’s employment status.
IR35 is a complex subject which requires everything be considered in order to make an assessment. Fortunately HMRC have very kindly provided an online tool so both workers and clients can check the tax status to see if IR35 applies.
HMRC have also indicated that they will uphold the results of the online tool, so get into the habit of:
using the tool for each contract, even if you know the answer
printing/saving the results as evidence
A bit of a touchy subject
The topic of IR35 is causing quite a stir. Though opinions are split there are many identifying the problems which IR35 will pose for them. As far as contractors and freelancers, it’s the threat of lower income, with the changes reportedly have the potential to reduce a worker’s net income by as much as 25%.
For companies (i.e. the end client), it’s the added pressure of adhering to extra government regulations and the likely prospect of increased costs as contractors inevitably put up their prices to cover the loss.
The Federation of Small Businesses has already urged the government to reconsider the plans amidst the uncertainty of Brexit, but so far plans are going ahead.