IR35 off-payroll rules will be introduced to the private sector on the 6th April 2020, affecting a large number of contractors.
The new IR35 legislation means that private sector contractors working in medium and large sized businesses will need to pay more employment tax and National Insurance. The IR35 rules will affect IT contractors, engineers, consultants and many more. Only contractors working for small businesses will be exempt from this legislation.
What is IR35?
IR35 rules have already been introduced to the public sector and is a tax legislation designed to combat tax avoidance. IR35 ensures that companies who use partnerships and intermediary companies (i.e limited companies, contractors, freelancers) pay the necessary PAYE tax, Employee National Insurance Contributions (NICs) and Employer NICs that they are meant to.
Essentially, it stops workers supplying their services to clients via a third party (a limited company) when they are actually performing services in the exact same way as an employee. If you are classified as an employee, you pay more employment taxes.
Should my company be worried about this?
If you start paying employment taxes under IR35 for the first time following the reform, HMRC won’t carry out targeted campaigns or enquiries into earlier years. HMRC will provide extensive support and guidance to medium and large sized organisations ahead of implementation.
What should contractors do?
It is probably worth noting that the contracting industry has survived an onslaught of legislation over the past two decades. Many predicted the demise of the contracting when IR35 was first mentioned in 1999, which never happened.
However following the summer 2019 consultation, the government have confirmed that off-payroll working rules are changing from April 2020. They have published new guides to help employers, contractors and agents understand what the changes mean for them - https://gov.uk/money/ir35.
In the meantime, we will keep you updated on any new information that comes to light and will advise you on how to stay ahead of the upcoming changes to IR35.