IR35 Changes - How will it affect you?
On 6 April 2020, we will see the launch of the new off-payroll IR35 rules which are without doubt the biggest change to IR35 rules since its inception.
From this date, the client is responsible for the operation of payroll withholding on the fees payable, which will include an unexpected employer's national insurance contributions (NIC) liability (13.8%). This applies where contract workers, who would be employees if employed directly, provide their services through an intermediary to clients in the private sector.
The client must decide before work commences, or for current contractors before 6 April 2020, if a contractor falls inside or outside IR35. They must then take relevant steps based on the decision made to ensure they are adopting the correct treatment of tax and NIC. For anyone caught inside IR35, the employer must ensure the correct deductions for tax and NICs are made via a payroll scheme and only the net pay is paid to the contractor.
Whilst some cases will be a straightforward inside IR35 decision, there are still grey areas to consider especially when it comes to engaging contractors for specific projects. These grey areas can sometimes result in a legal challenge between HMRC and the contractor which is something best avoided! Examples of IR35 cases against Lorraine Kelly, Kaye Adams and The Big Bad Wollf have been recently highlighted in the news.
As with all IR35 decisions, the liability for what HMRC deem to be an incorrect decision will fall with whoever is responsible for making that decision which in this case is the employer/end client and a demand would be issued to them for any unpaid tax and NICs along with relevant penalties.
What can you do to prepare for the IR35 Changes?
Look at your current workforce - do you have any current contract workers that are currently working outside IR35 but may be affected by the changes? If so, now is the time to consider the options, review each contractor on a case by case basis.
Know your obligations - ensure that you understand your obligations for 6 April 2020 and that you are able to meet them.
Remember, it is not just the wording of the contract, you must also take into account the reality of the situation and the working practices which are in operation. In particular these relate to the direction, supervision and control over the work, the ability to substitute and most importantly the mutuality of obligation to offer work and complete work.
Offering IR35 advice
Here at Sopher + Co we can offer specialist IR35 advice on the status of any contractors you are looking to engage or have engaged. We can provide contract reviews and specific advice on alternative options to engaging individual's that provide clarity to the situation.
If you need IR35 advice or guidance, please contact our tax team directly at firstname.lastname@example.org or call 020 8207 0602.
To see further details on full IR35 changes here.