IR35 — What’s Changing?
As we by now probably all know IR35 is a tax legislation that was first introduced in the Finance Act of 2000 to help enforce the avoidance of tax. This is to highlight and identify what HMRC value as ‘disguised employees’ who are working through a Personal Service Company (PSC)/Limited Company. Now with the changes coming in April 2020 people need to understand that IR35 itself has not changed however is now being introduced into Private Sector ‘off-payroll’ employees like it was introduced to the Public Sector back in 2017. So, to sum up IR35 is not changing but the method of enforcement is.
What is changing?
So, as mentioned the legislation itself is not changing, however how it is enforced is where the changes are happening. The main changes that will occur are that now the end hirer becomes responsible for determining whether IR35 applies and the fee payer, whether that be the end hirer or the agency, become responsible for deducting tax and employee NICs and for paying employers NICs. As well as this, IR35 is now determined on an assignment by assignment basis so companies cannot move forward using a ‘blanket’ method. The new enforcement is aimed at ‘Large and Medium Sized Companies’ only which is defined by the Companies Act 2006 as satisfying a minimum of two of the following:
- Over 50 employees
- Aggregate turnover over £10.2m
- Balance sheet over £5.1m
Inside or outside?
With the changes now coming into play and effecting the private sector it is important for contractors to be able to determine whether they are inside or outside of IR35. HMRC state that if the contractor is treated like, looks like and acts like an employee then they should be taxed like one which therefore means you fall inside of IR35. Consequently, if you are hired onsite with an employee with the use of their equipment and with continuous check ins/support with the project you are more likely to be deemed inside IR35.
On the other hand, there are a clear level of contractors who are exempt from this change and fall outside of IR35. The simplest way for this to be determined is with ‘Supervision, Direction and Control (SDC)’. For example, this is when a contractor receives a brief from a client and then will go away and work solely on the project with predetermined ‘show and tell’ points throughout. This could therefore put the project outside of IR35 as the client’s equipment, office space etc is not being used by the contractor to complete the work.
The most straight forward way to describe this is with a builder; if a builder is hired to build a house they are employed with a clear plan in place and project mapped out. They can then handle the project as they see fit — for example substituting the work at an additional cost to them through sub payment to someone else — and then returning to the project for final checks or if there is an issue. This type of work is unlikely to ever be checked by the HMRC.
The CEST (Check Employment Status for Tax) Tool is going to be a massive factor in helping both employers and employees to determine where within IR35 their projects fall. It is a digital tool that comes in a quiz-like format that is designed by HMRC to help authorities decide if a worker falls inside or outside the scope of IR35. https://www.tax.service.gov.uk/check-employment-status-for-tax/reason-for-using-tool
Where to go for advice?
During this time of change, even with explanations provided and things such as the CEST Tool there is still going to be confusion for contractors. There are plenty of entities that can give advice on such matters however you should always ensure you are going to an unbiased source. For example, recruiters are an unbiased party as a project falling inside or outside IR35 does not directly affect them. Recruitment companies like Premier can support and educate all parties impartially.
To conclude, I feel that just because there are changes coming into play, they are not necessarily for the bad. The truth is that contractors are now likely to earn less money however both clients and recruiters are aware of this so there is also room for discussions/negotiations moving forward into new positions. Here at Premier Group we are good at understanding you as a contractor and our clients and putting you together to maximise earnings. This is not going to kill the contract recruitment market going forward as it is fact that contractors will still always be hired as companies simply cannot afford PAYE employees when they run a project by project basis.
For more information and to find the right solution for your business please get in touch with me on molly@fewandfar.io 💛
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