IR35 - an overview

Cast your mind back to 2000. While the nation celebrated the turn of the Millennium, the government introduced new tax rules for individuals who work for a company as an ‘off-roll’ employee but through their own limited company.

This put a stop to such individuals benefitting from certain tax advantages that come with setting up a limited company (and therefore potential tax avoidance) by ensuring they pay similar Income Tax and National Insurance (NI) contributions as contracted employees.

In April 2017, the government reformed these rules so public sector organisations who take on contractors are now responsible for deciding if the work falls ‘inside’ or ‘outside’ of the IR35 framework (more on this later). For those contractors whose work falls inside the framework, the fee payer is also responsible for calculating and deducting Income Tax and NI contributions before paying an invoice.

It’s estimated that the reform raised an additional £550 million in Income Tax and NI contributions in the first 12 months.

At the 2017 Autumn Budget, the government announced plans to tackle non-compliance in the private sector. Following a 12 week consultation, the government confirmed at last year’s Autumn Budget that the tighter tax rules under IR35 would be extended to contractors working within the private sector - specifically medium and large businesses - from April 2020.

Who will be affected?

According to Rules for off-payroll working from April 2020, the changes will likely affect:

1. Individuals supplying their services through an intermediary, such as a personal service company (PSC), and who would be employed if engaged directly.

2. Medium and large-sized organisations outside the public sector that engage with individuals through PSCs.

3. Recruitment agencies and other intermediaries supplying staff through PSCs.

Again, responsibility for operating the off-payroll working rules will shift from the individual’s PSC to the fee payer (end client, recruitment company or umbrella company depending on who holds the status determination statement) . This includes responsibility for deciding whether the rules should apply and deducting the associated employment taxes and NI contributions.

It’s worth noting that small businesses (defined by HMRC as one which does not exceed two or more of the following criteria; an annual turnover above £10.2 million, a balance sheet total over £5.1 million, or more than 50 employees) will not be affected.

Are you in or out?

If your contract is classed as inside IR35, you’re deemed to have the same level of risk, liability and responsibility as a permanent employee within the same business. This means you’ll have to pay Income Tax and NI

300 North’s take on IR35

Here at 300 North, we are fully prepared for the IR35 reforms and have been working with several industry experts for some time. We’ve also been working with our clients and candidates to make sure they are fully aware of the new changes and the implications this will have on all parties involved. The last thing we want to happen is a last minute ‘knee-jerk’ reaction by our clients which can have implications for all parties involved, including the end client.

We will work with our clients and candidates to offer them advice and guidance on what they should be doing to ensure they are ready for the new legislation in good time. Our clients, in particular, will need to ensure they have a robust internal process to handle the new legislation change. Again, something we can help with.

In terms of what impact this will have on the facilities management sector, it’s a bit too early to tell. However, it is likely to follow a similar pattern to the public sector. 70% of public sector sites found that there was no change in the ability to fill contract vacancies post 6th April 2017 and most public bodies reported that their ability to fill contract vacancies had not changed.

The biggest impact will be felt by temporary workers who are currently working through a PSC and are deemed to be ‘inside’ IR35 under the new legislation. If our clients wish to keep them engaged post 6th April 2020, the worker will probably need to change their employment status and contracts.

Our advice is to make sure all parties likely to be affected are as informed and prepared as they can be as soon as possible. April is not far away!

Useful reading and tools

https://www.gov.uk/government/publications/rules-for-off-payroll-working-from-april-2020
https://www.gov.uk/guidance/april-2020-changes-to-off-payroll-working-for-intermediaries
https://www.contractorcalculator.co.uk/ir35taxescalculator.aspx

300 North are the Facilities Management recruitment specialists and deliver permanent, temporary and interim solutions to the UK Facilities Management, Mechanical & Electrical and Construction sectors. Get in touch to find out how we can help you with your recruitment needs by visiting our website home page or calling us on 0113 336 5161.