IR35: Where are we now?.

You would be forgiven for having enjoyed a hiatus from IR35 issues so my apologies for intruding! The controversial reforms to off-payroll working rules will go ahead in April 2021 after an amendment to the Finance Bill which would have seen the changes delayed for at least two years was voted down by MPs.

The reforms were implemented in the Public Sector in 2017 and were due to apply to the Private Sector from April 2020 but the move was delayed by the government until next year in light of the coronavirus crisis.

What is IR35?

IR35 is the name commonly used to refer to a piece of tax legislation which came into force in July 2000.  It is aimed at identifying “disguised employees” working through their own limited companies (PSCs).

IR35 looks at whether a contractor is working any differently from an employee.  There should be noticeable differences between how contractors and employees work, otherwise IR35 may apply to the contractor.

IR35 says that if you work like an employee you should be taxed like an employee.  The responsibility for determining tax status has been the contractor’s decision to make.  The changes introduced to the public sector changed the responsibility for determining the tax status from the individual contractor to the end user, transferring the liability for the decision at the same time. From April 2021 this same change will apply to every medium and large private sector business.

What should I do now?

Whilst the Finance Bill has still to have its third reading before being passed to the House of Lords clients should start to prepare now for what is a fundamental change in the tax rules affecting how they engage with contractors. A basic to-do list would cover:

1. Assess whether they will be affected or exempt from the off-payroll rules, because they are a small company (or not) and record this assessment.
2. Assess who amongst their contractor population might be affected by this change and why.
3. Identify who within their organisation can make status decisions and ensure that those individuals understand how to assess status and have the appropriate tools to do so. Put processes in place to pass down the status decision and the reasons for that decision.
4. Work with partner agencies who will have their own processes to implement.
5. Agree with agencies how the increased employer costs will be met – agencies will not be able to simply absorb these costs and pay contractors the same rates.
6. Agree the communication plan to agencies and contractor workforce.

Grovelands have a detailed understanding of the changes to IR35 and how to manage the implementation of them.  To find out more on how the requirements will impact your business reach out here.