IR35 or ‘off payroll’ working was introduced in 1999 and has been the subject of confusion for most of its 20-year history and come April 2020, the rules are changing again.
In April 2017, HMRC changed the rules for the public sector by moving the responsibility for deciding whether an individual falls within the rules for IR35 to the engager of each contract.
As of April 2020, this is to be extended to medium and large-sized businesses in the private sector engaging workers through Personal Service Companies that meet 2 or more of the following conditions:
- have an annual turnover of more than £10.2 million
- have a balance sheet total of more than £5.1 million
- have more than 50 employees
The private sector includes third sector organisations, such as some charities.
If it is determined that a worker does fall within the rules of IR35, they are deemed to be an employee of the client and the client is then responsible for deducting Income Tax and National Insurance Contributions from the payments made to the individual’s company and paying those over to HMRC.
As a client, you will need to decide the employment status of each of your workers you have agreed a contract with. You’ll need to:
- pass your determination and the reasons for the determination to the worker and the person or organisation you contract with
- make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid
- have processes in place to deal with any disagreements that arise from your determination
Small-sized clients in the private sector will not have to decide the employment status of their workers. This will remain the responsibility of the worker’s intermediary.
There has been criticism of the tools and information required for clients to make an informed decision and given the penalties for making an incorrect employment status determination, some clients in the public sector opted to make blanket ‘inside’ IR35 decisions. It would not come as a surprise if the same happened in the private sector too.
We have provided links below to the latest guidance on the HMRC website and other useful articles:
If you have any questions regarding the upcoming changes or anything IR35 related, then please get in touch with our Senior Tax Consultant Victoria Lawson on 01228 711888.