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IR35 is changing

Posted-on December 2019 By Amy Bates

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Did you know...

  • 54% of companies are not prepared.

  • 40% of contractors aren't aware that the law is changing.

  • Employers are going to be liable if contractors are not attributed correctly for IR35.

What is IR35?

The UK's IR35 legislation ensures that contractors pay the same tax and National Insurance contributions as an equivalent employee.

It aims to address contractors who:

(a) Operate through a intermediary company, usually a personal service company (PSC), which is a limited company that they own.

(b) Who are otherwise classed as employees in the absence of the intermediary.  For example, someone who is working permanently and full-time for a single client. 

A contractor who is working through a limited company but is practically working as an employee is considered to be a "disguised employee".

The way in which payments are paid are different depending on the the working arrangements.  A salary is paid directly to an employee and is subject to tax and National Insurance Contributions (NIC).  In a PSC, the worker receives payments as dividends, which are exempt from NIC.  IR35 intends to prevent disguised employees from using this working arrangement to avoid NIC.

What is going to change?

The new IR35 legislation will be introduced in April 2020, and it will shift the responsibility for assessing IR35 obligations from the contractor or PSC to the end-user, that is the company that uses contractors.

Where the end-user concludes that IR35 applies, the fee payer (which may be the end-user themselves, a recruitment agency, or other third party paying the intermediary) will be responsible for accounting for and paying the related tax and NIC to HMRC, including the additional cost of Employer’s NIC.

Under the proposed changes, the new rules aim to reduce the cost of non-compliance and make it easier for HMRC to monitor and enforce compliance in the future.

Who will the new IR35 rules impact?

The new rules will apply to:

(a) Medium and large businesses in the private sector that are the end-user of the worker’s services,

(b) To the fee-payer, if different, such as fee-payers in the recruitment sector, and

(c) Contractors providing services to medium and large businesses, and where the end-user is a small company, the PSC will continue to be responsible for assessing whether IR35 applies. The Companies Act 2006 defines a small business as a business with two or more of the following features:

  • turnover of £10.2m or less

  • a balance sheet total of £5.1m or less

  • 50 employees or fewer

  

If you would like more information on the changes to IR35, and to discuss how you can prepare, please feel free to contact us on +44 161 448 8283