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Whilst IR35 legislation (also known as Off-Payroll) is not new, the way it’s implemented will change and that may have an impact on either you as a contractor, or your current and future use of such staff. This could impact anyone an Interim, Temporary, Contractor, Consultant or Freelancer within a business.
What’s the backstory?
When it was introduced into law in 2000 by the Chancellor at that time, Gordon Brown stated that the main aim of the IR35 legislation was to prevent workers from setting up limited companies or Personal Services Company (PSC)* through which they saved tax and NI contributions whilst working, in effect, as an employee.
This means HM Revenue and Customs can look through the contractual arrangement between the worker’s company and the client company in order to spot a disguised employee. The fee paid to the worker’s company would then be taxed as if it were a salary and standard NI payments would be applied.
What’s changing?
Currently, in the private sector, the person providing services through their own PSC is responsible for deciding if IR35 applies. From April 2020 the responsibility for operating the off-payroll working rules will move from individual contractors to the end-client organisation, recruitment business or other third party engaging the contractor - referred to as the fee-payer in the draft legislation.
This change will only affect arrangements with medium and large private sector organisations as there is a “small” company exemption, the definition of which is based on the Companies Act 2006 definition of a “small” company. The Government consultation closed on 28 May 2019, and on 11 July 2019 the draft legislation, explanatory note and summary response document was published.
What does it mean?
If you have existing contracts or set up new contracts that continue past the March 31st 2020 and for all contracts that start after that date, a review of the contract and scope of the role is recommended to check if the role falls inside the scope of IR35 and therefore affects how you use or operate as a PSC to deliver the role.
For example, possible indicators of being inside of the scope might be using a desk at the client’s premises, using a client’s equipment and having a clear reporting structure within which they work. Indicators for being outside of the scope might conversely be having no fixed location, using equipment owned by the PSC and not falling under the supervision of any individual and therefore carrying out the work unsupervised.
It's crucial for businesses and individuals to understand IR35 and that these changes don’t need to create a barrier to benefiting from the considerable advantages of contract work.
Please do get in touch if you would like to discuss the changes and solutions for your business needs. Just email Steve Clarke - UK Head of Interim or call 020 7478 2520. Steve has in-depth experience and knowledge of the IR35 change and of how to minimise any impact on either you as a contractor or your business.
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*A Limited Company or more specifically a Personal Services Company (referred to as PSC from this point) is a company that has been incorporated to carry out work for a company or individual. The PSC invoices either the agency (e.g. Cobalt Recruitment) or end client for the work, which is then paid to the associated business bank account. This is then managed by either the individual or the individual’s accountant.