IR35 changes - “doing nothing is not an option”
Please note: this blog was written before the IR35 implementation date was delayed to April 2021, however the information contained in this blog is still relevant and helpful.
From April 2020, all UK companies with more than 50 employees and more than £10.2 million annual turnover, will be required to make an IR35 status determination on any contractor providing services to their business.
This change will see the rules, that were implemented into the Public Sector in 2017, extended into the Private Sector to address the issue of non-compliance from a taxation perspective. HMRC believe that not extending these rules to the Private Sector would cost up to £1.2 billion a year in unpaid tax by 2022 if no action was taken.
Charlie Cox, Commercial Manager at SThree PLC said “This is a huge change for any organisation who utilises contractors or flexible workers and doing nothing is simply not an option”.
The current rules in the Private Sector mean that the contractor decides if the IR35 tax rules apply to the assignment they are working on. If they believe the rules do apply, it is known as being ‘Inside IR35’ and if they don’t apply, it’s known as being ‘Outside IR35’.
The amount of tax payable by the Limited Company or Personal Service Company (PSC) varies dramatically depending on the IR35 determination. A contractor considering themselves as Outside IR35 would see a greater retention on the income compared to one determined as Inside IR35.
The End Client will be responsible for making the IR35 determination, but the new rules will mean that the Fee Payer (if the client determines the assignment as Inside IR35) will have to make Tax and National Insurance deductions at source and remit to HMRC before paying the Limited Company the Net amount. This is known as a ‘deemed payment’.
This change was expected to be rolled out in April 2019, however, during the Autumn Statement in 2018, Phillip Hammond confirmed the new rules would be implemented in April 2020 with the justification that it would give businesses ‘sufficient time to prepare’. The reality is that with only months until the change in legalisation going live in the Private Sector, there are still a very high percentage of clients who are not yet prepared.
Progressive Recruitment, part of the SThree group of companies who operate a significant part of UK business in the Public Sector, has supported customers through these changes before. SThree is in a business as usual state, operating with knowledge of and compliance with the rules. SThree has helped Public Sector customers and contractors navigate these changes and are well setup to assist the Private Sector do the same.
Charlie Cox went on to say, “We advise clients to audit their flexible workforce, review their supply chain setups, ensure the business understands the new rules and have the relevant processes and procedures in place to make the correct determinations.” He continued, “Communication is also key It’s vital that businesses talk openly with the contract workforce and give them confidence in their preparations. Not doing so could see contractors seek assignments with organisations who are taking these changes seriously and are commercially set up”.
Despite the proposed changes in legislation, the contract/flexible workforce is set to grow, and working with a reputable, experienced PLC such as SThree is a great way to prepare. SThree have been educating customers on the topic for some time and you can access all the available resources here.
For more information on how we can support your business, please contact us or your local consultant for more information.
This document/article is for information purposes only, and should not be seen as providing legal or tax advice. SThree and its family of brands, advises clients and contractors to seek independent legal and/or tax advice, where required.