IR35 Changes – The Complete Guide
HMRC have notified us that there will be changes to the IR35 rules in April 2020. They bid to crack down on “disguised employment” and implement fines for the non-compliant. This is fast approaching, so it’s time to get a plan in place to ensure that your organisation – or you – are protected.
The new rules make it compulsory for the company to be responsible for deciding if a freelancer or contract employees’ status is correct rather than the employee deciding for themselves. The ability to avoid paying their NI contributions and mandatory employment benefits, such as sick/holiday pay and pensions, will no longer be tolerated. This in turn has resulted in many large businesses recently refusing to hire contractors or paying them notably less, out of fear of the potential taxes they face.
However, there are some businesses out there and contractors who are strongly opposed to the rule changes. A petition has been created that has currently been signed by over 29 thousand people. It is urging the government halt IR35 reforms within the private sector due in April. You can read and sign the petition here.
Potential 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 are the owner of a company, agent, engager, or anyone else along the supply chain, you may be interested to read our recent article on Status Determination Statements.
According to data collected by offpayroll.org.uk, around one in ten contractors have already decided to terminate their contracts ahead of the reforms coming into action. If you’re a contractor, it is advised that you have insurance to protect yourself. Understanding the tax investigation process is key. Defence is expensive, so check that your insurance (if you have any) is valid, with no lame get-out clauses. You want your employer to be on board and back your claims about your working arrangements.
If you have any IR35 related questions or contractor related issues and would like to discuss options, feel free to contact us on 02085300720 or email firstname.lastname@example.org We are hosting an IR35 briefing event on March 5th for a deeper insight into the changes being implemented. There will be a Q&A and an opportunity to network with other contractors from various industries. If you’d like to know more please email email@example.com