Are you aware that the rules for IR35 has changed? To find out about the changes continue reading below.
What do I need to know?
On 6 April 2017, the off-payroll working rules changes for public sector bodies. From 6 April 2020, these new rules will apply to private sector companies.
Specifically, the rules will apply to large and medium sized organisations who engage workers that provide their services through an intermediary.
There are tax and National Insurance advantages for both the engager and worker to working ‘off-payroll’.
The typical scenario for off-payroll is that the worker will provide their services through an intermediary.
Providing services through an intermediary can be a problem if the worker would be classed as an employee of the end client and the services were provided directly to the end client.
If this is the case, then the IR35 off-payroll anti-avoidance rules will apply. The intermediary should work out the deemed payment arising under the IR35 rules and pay the correct amount of tax and National Insurance to HMRC.
What are the new rules?
Compliance with IR35 has always been a problem, so responsibility for deciding if the rules apply moved to the end client where this client is a public sector body on 6 April 2017.
If the relationship is that the worker would be an employee if the services were supplied to the public sector body, the fee payer must deduct tax and National Insurance payments made to the intermediary.
The rules will be extended on 6 April 2020 to apply where the end client is a large or medium sized private sector organisation.
This will apply if any of the following two conditions apply.
The client has:
- More than 50 employees
- Turnover of more than £10.2 million
- Balance sheet total of more than £5.1 million
If the end client is ‘small’, the IR35 rules apply, and the intermediary will be responsible for determining whether they apply and working out the final payment if they do. This is unchanged from the current rules.
How can I get ready for the changes?
To get ready for the changes HMRC advise that large and medium firms should:
- Determine whether the off-payroll rules will apply for any contracts that extend beyond 6 April 2020
- Look at their current workforce to identify those individuals who are supplying their services through personal service companies
- Start talking to contractors about whether the off-payroll working rules apply to their role
- Put processes in place to determine if the off-payroll working rules will apply to future engagements (assign responsibility for how payments will be made to contractors who fall within the off-payroll working rules).
If you are going to be affected by the changes, then you should consider whether it will be worth remaining ‘off-payroll’; as it may be less hassle to not provide their services as an employee.
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