The IR35 rules will be changing next April. Here are some of the important changes that may impact on you as an engager, agent or worker.
Now:
If you’re a contractor providing a service through a Personal Service Company (PSC) or similar set-up, it is your responsibility to decide if the IR35 legislation applies to the contract you’re working on.
Apart from:
Public body clients are an exception; if you’re engaged by a public body, IR35 is their responsibility, not yours.
From April 2020:
The engager will be responsible for IR35 in the same way that public bodies are. The business you’ll be working for at that time will decide whether it applies to you.
Apart from:
Small companies within the private sector will not be affected by the changes. This means companies that:
-
- Turnover £10.2m or less.
- Show £5.1m or less on its balance sheet.
- Employ 50 people or fewer.
How it will work from April 2020:
The engager will decide if IR35 applies. If it does, they will have to do one of two things:
- If they are the fee payer (they pay the worker’s company) they must:
– process the payment through the payroll and deduct PAYE tax and National Insurance (NI)
– pay Employers Class 1 NI (13.8%). If their ‘paybill’ (the total Class 1 NI paid) is more than £3M, they must pay an apprenticeship levy. - If the engager is not the fee payer they will have 30 days to notify the next party in the chain of the decision that IR35 applies. If the next in line is not the fee payer it will also be responsible for passing the information up the chain to the eventual fee payer.
How is IR35 assessed?
The following facts are assessed on balance.
- Supervision, direction and control
- Mutuality of obligation
- Financial risk and opportunity to profit
- Provision of equipment
- Right of substitution and termination
- Integration into the organisation
- Employee benefits
- Contractual terms
HMRC’s “Check Employment Status for Tax” (CEST) tool will help the decision-maker decide.
The impact…
How this may impact on engagers
- Failing to apply IR35 deductions could lead to tax and NI liabilities being applied to the business
- Increased administration, including additional payroll costs, Employer’s NI and possible apprenticeship levy
- Loss of contractors who do not agree with deductions being made from their payments
- Workers trying to claim employee rights, such as holiday pay
- Uncertainty of who would be responsible for additional costs whether workers are provided through an agent
- Less flexibility in the workforce.
Potential impact on contractors
- Cash flow issues where deductions are taken.
- There is currently no process in place to challenge an engager’s decision, and there’s no one to arbitrate if things go wrong.
- Possible challenges from HMRC on IR35 decisions made prior to April 2020.
- Reduced opportunities to be paid gross.
- Risk of being introduced to avoidance schemes that do not work.
- Increased admin fees to PAYE tax and NI.
- Engagers changing their policy to only deal with the worker as an employee.
Potential impact on agencies
- If an agent fails to act on instructions from the engager that IR35 applies, that agent could become liable for the worker’s tax and NI.
- Additional costs through Employer’s NI and, potentially, the Apprenticeship Levy.
- If the clients decide to employ workers as employees, when they were previously engaged ‘off payroll’, the agency’s services may no longer be needed beyond introducing the worker.
If you’re a contractor, agent, engager, or anyone else along the supply chain, you may be interested to read our recent article on Status Determination Statements.
Feel free to get in touch if you have any queries about IR35 or any contractor-related issues.
