There’s a lot of confusion right now about IR35; what it is, why it’s changing and what those changes will mean for the millions of self-employed contract workers currently operating in the UK.
Although many of the proposed changes to IR35 legislation are not yet set in stone, we have put together some helpful information to try and make sense of the latest developments and how they might affect you:
What is IR35?
IR35 is a piece of legislation that was introduced in 2000 to ensure the correct national insurance and income tax was paid by self-employed contractors. IR35 prevents tax avoidance, stopping workers who seek to hide their employment status from HMRC by supplying services to clients via an intermediary – a practice known as ‘disguised employment’.
What’s new with IR35?
In 2017 in the public sector, the onus shifted from worker to employer; employers became responsible for determining the correct tax status of their workers and took on the associated tax risks. From April 2020, it is expected that medium and large-sized businesses in the private sector will face the same shift in responsibility.
Back in March, the Government began an open consultation on the implementation of reforms to the off-payroll working rules from April 2020. The consultation asks for views from all sectors on subjects that include;
– the scope of the reform and impact on non-corporate engagers
– information requirements for engagers, fee-payers, and personal service companies
– addressing status determination disagreements
The consultation closed on 28th May 2019.
We’re not in Kansas anymore
There are many who see these changes as far more than a reform of current rules, calling it a ‘stealth-tax’ and alleging that the consultation seeks to mislead. Adrian Marlowe, chairman of the Association of Recruitment Consultancies (ARC), said to onrec; “…the proposals go significantly beyond compliance with the original IR35 rules… The device used is therefore at best a brand new tax burden, and at worst a new tax altogether.”
A lot of the disagreement stems from the new rule which states that payments to contractors must not include either employer’s NI at 13.8% or an Apprenticeship Levy which, at 0.5%, would mean each contract becomes 14.3% more costly to the company engaging a contractor.
What do these changes mean for you?
The anticipated changes to IR35 from April 2020 will mainly affect the businesses who receive contract services, rather than the workers themselves. However, it would be foolhardy to assume these effects will not trickle down and be felt by all.
Uncertainty surrounding the issue will likely cause companies to think twice before engaging new individuals through personal service companies (PSCs) so, if you are unsure about your status, you can use the HMRC employment status checker to confirm. Once you know where you stand, you will be better prepared to discuss reservations from potential clients.
With regard to the potential 14.3% increase in cost to engage, it is highly likely that all contracts will be renegotiated. Unfortunately, these changes seem set to be costly for both sides.
Our expert IT recruitment consultants are here to take the pressure off you when recruiting someone new, permanent or contract. We liaise with candidates with the utmost care to ensure that their candidate experience is a positive one. Call us on 0207 788 6600 and let us help you Recruit Someone Worth Recruiting.