IR35: Off-payroll rules and changes coming to the private sector

Designed to tackle what HMRC calls ‘disguised employment’, IR35 is going to be big news this year following a delay in changes to it from 2020.

It is often advantageous for contractors and freelancers to work through a limited company. Employers don’t have to pay Employers’ NI or provide benefits such as sick pay or maternity leave. The contractor or freelancer may also enjoy tax efficiency although changes to the taxation of dividends introduced in April 2016 has reduced this significantly.

Current public and private sector differences

Changes to the public sector were introduced in 2017, moving the responsibility (for deciding whether IR35 applies) away from the worker providing the services through their Personal Service Company (PSC) to the public sector hirer. If they decide their status falls within an “employment relationship” then the person hiring the contractor is responsible for deducting tax and NI and reporting them to HMRC.

From April this year, the rules will also apply to private sector companies: all medium – large organisations will have to adopt the same rules. Small business are exempt (less then £10.2m turnover, balance sheet total of no more than £5.1m and fewer than 50 employees) at present. This exemption was a concession made by HMRC in response to the criticism concerning the administrative burden that the legislation would place on businesses - the smallest firms being deemed to be at greater risk.

So if you are presently contracting to a private sector company via a PSC, what changes will you see happening?

Firstly the company you are contracting with will consider whether your contract with them falls within the off-payroll working rules and will give you a Status Determination Statement (SDS), telling you of their decision and why. For the SDS to be valid, the company must provide the reasons supporting their decision and must take reasonable care in reaching this conclusion.

We also recommend that you check your status via the Check Employment Status for Tax (CEST) Tool - see link below. This is a free online service provided by HMRC to help organisations and individuals work out whether they are employed or self-employed for tax purposes. HMRC has stated that it will generally stand by CEST’s results.

Determining whether you are caught by the IR35 rules follows several factors that we will relay to you in our next article. However ,if you wish to contact us about anything you have read so far or need assistance as you have received a SDS and disagree with its findings, we are here to help.

It's important to note that IR35 rules apply by individual contract so you may find some of your work is inside IR35 and some of it isn't. This makes tax calculations more complicated which, of course, we can help with.


CEST - check your status here

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