Originally introduced in 2000, the piece of legislation will soon be updated, with new changes coming in to force in April 2020.
The law was designed to increase the collection of income tax from people who work through an “intermediary”, for example: an umbrella company or personal services company.
From April, the existing off-payroll rules being extended from public sector to public and private sectors. The concept of IR35 status for tax and national insurance is not changing, but how the IR35 status determination decision is made and how the rules applicable to that status are then applied is changing.
There is still no final legislation, and the next UK budget has been delayed to 11th March 2020, when the government is expected to release further information.
Inside IR35 Status – If the intermediary did not exist and the individual works in a way that makes them look like an employee of the client, they’ll be deemed to be an employee for tax purposes and pay employee rates of income tax and national insurance.
Outside IR35 Status – The individual does not work in a way that they look like an employee, so they’re deemed to be self-employed for tax purposes and pay self-employed rates of income tax.
From 6th April 2020, the off-payroll rules will also apply to medium and large private sector businesses.
Companies will need to issue a Status Determination Statement to state if a role is ‘inside’ or ‘outside’ IR35 (i.e. where a contractor sits in legal terms).
The rules will not apply to small companies that meet two or more of the following conditions:
v Has a turnover of not more than £10.2million
v Has a balance sheet total of not more than £5.1million
v Has no more than 50 employees
IR35 will still apply to companies in small groups and joint ventures, if the parent company or any parties in the joint venture are not small; and unincorporated organisations with a turnover of £10.2million or more.
The new rules will apply to all payments made on or after that date (not just work completed). HMRC state that statutory payments and employment rights will not be affected by these changes.
The off-payroll rules take precedence over managed service company legislation and Construction Industry Scheme (CIS).
· Create a Status Determination Statement
· The client must take reasonable care when making their status decision, otherwise liability for unpaid tax and NICs will transfer to it, i.e. they’ll become the fee-payer
· CEST tool on HMRC website
· Could use IR35 consultancies but HMRC won’t necessarily support their decision
Act now – the law changes in April 2020 – so a detailed plan of action will prepare companies for the legislation changes.
All workers must be individually assessed to see if they fall within IR35. Companies can use the UK Government CEST tool to do this.
Engaging a recruitment company specialising in compliance will provide additional expert help with your workforce planning and recruitment strategy.
Find out more information about IR35.
Get in touch to see how VHR can help your business with compliant workforce planning.