IR35 – is your Business Ready for the Reforms?

In April 2020, the UK government is proposing to extend IR35 to the private sector. Is your business ready for the change?

When the reforms are put into place, large and medium sized companies will have to decide whether contractors need to pay income tax and NICs.

The government believes less than 10% of PSC’s who should comply with the IR35 legislation currently do so, at a cost of more than £1 billion in unpaid taxes and National Insurance.

Many recruitment agencies and industry bodies believe the rules are a problem for employers and contractors, but here at Cummins Mellor we welcome the reforms as we have always been proud about operating payroll for the candidates whom we supply to businesses on a temporary basis, making the correct deductions at all times.

So, what is IR35?IR35 LOGO

The Intermediaries Legislation has been in force since 2000 to crack down on freelance contractors who had incorporated themselves into a Personal Services Company (PSC) to take advantage of tax benefits but were still considered to be an employee… otherwise known as being a ‘disguised’ employee.

In 2017, the government clamped down on off-payroll working in the public sector and clients became responsible for working out whether their workers were caught by IR35. Any workers would have to have PAYE and NICs deducted at source.

What is going to change?

Similar changes will be made to the private sector to stop the apparent tax abuse by companies engaging with disguised employees and paying them as self-employed.

However, the method for determining IR35 status isn’t changing. The main change is the responsibility and liability for making the wrong assessment. When the legislation changes are made, responsibility for determining the IR35 status of a PSC will move to the company that engages with the PSC, aka the hirer.

It will be up to the fee payer to ensure the correct deductions and charges are made as long as everyone in the supply chain fulfils their responsibilities.

HMRC will be fining hirers that aren’t taking reasonable care when setting the IR35 status and the liability will then be transferred to these businesses, whether they are the fee payer or not.

It is also possible that the liability can move up the supply chain, which is why it is so important that you choose a reputable agency that understands the legislation so that you don’t end up being stung by the tax man.

The Impact on Individuals

This measure is expected to impact 170,000 people working through their own company, who would be employed if engaged directly.

The good news is that those who are complying with the existing rules should feel very little impact.

The measure is targeted at individuals who are not compliant, meaning that adhering to the off-payroll working rules could have a significant impact on their income available to them and their families.

What can you do to prepare?

Whilst we are not qualified to offer professional advice on this topic, we have teamed up with an IR35 expert, Stephen Outhwaite of Outhwaite Associates, who is happy to offer assistance and professional advice.

If you would like any information, please contact us today.

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