By Helen Sewell, Accountant at Hive Business
It has been a couple of years since we set out the ramifications of IR35 or ‘off payroll working’ legislation.
Since then the Government have confirmed they will roll out further changes across the private sector for medium and large companies next year.
IR35 legislation was first introduced in 2000 to ensure workers operating through a limited company – who would otherwise be deemed to be employees if they were providing their services directly – pay the same tax and NI as an employee.
Not content it is working properly (and let’s face it, it isn’t working), the Government recently announced new rules – which come into force in April 2020 – whereby across the private sector, engagers with turnover broadly in excess of £10.2m will become responsible for assessing an individual’s employment status and deducting the right tax and National Insurance contributions. The onus shifts from the associate (contractor) operating through an intermediary company to the practice (end user or engager), to assess whether IR35 applies.
IR35 is not an easy rulebook to follow. There are numerous factors to be considered when establishing the underlying working reality and it really must be looked at on a case by case basis.
As we now know, this area of tax law is continually being reviewed and updated. Whilst there is currently a dispensation to allow all associates (whether sole traders or operating through a company) working under the terms of the standard BDA contract to be deemed outside the scope of IR35, the net is certainly closing in.
The danger/ mild threat/ general annoyance that HMRC could carry out an IR35 investigation of a medium or large company – at any time in the future – and claw back taxes may certainly alter the recruitment activity of the larger corporates.
Perhaps more likely is the effect that the burdensome assessment dictated by the HMRC guidance will have for every new engagement. You can see that quite quickly these corporates may conclude the burden is too heavy, the additional processes and resources for IR35 compliance too cumbersome, and will simply assert to apply IR35 or even refuse to engage with limited companies whether IR35 would technically apply or not. This is exactly what we saw in the public sector 18 months ago. Fortunately these new rules include a new right to appeal for the associate.
We are monitoring the landscape and will update you with any further changes. In the meantime, if you would like to discuss your position then please get in touch.