It’s time to get ready for IR35 private sector reforms

The start of a new year is a time for making changes, and with the introduction of the reformed Off-Payroll (IR35) working rules in the private sector fast approaching, affected businesses need to get themselves ready for the incoming law changes.

Who is affected?

The new legislation applies to large and medium-sized businesses which rely on freelancers or contractors, and aims to ensure that these individuals pay broadly the same Income Tax and National Insurance contributions as other employees. Small businesses are exempt, although if you are a small personal service company (PSC), you may still be affected as detailed below.

Until now it has been the responsibility of these individuals to determine their IR35 status, but the rules were changed for public sector companies in 2017, and the private sector is expected to follow suit from 6 April 2020.

These rules will place the burden squarely on businesses to ensure that any individual who works like an employee, but is engaged through an intermediary such as a PSC, pays the correct tax contributions.

How can you prepare?

HMRC issued guidance in April 2019 about what business owners and managers can do to prepare:

  1. Conduct an audit of your current workforce (including those engaged through agencies and other intermediaries) to identify those individuals who are supplying their services through PSCs.
  2. Determine if the off-payroll rules apply for any contracts that will extend beyond April 2020. You can use HMRC’s Check Employment Status for Tax service to do this.
  3. Talk to your contractors about whether the off-payroll rules apply to their role.
  4. Put processes in place to determine if the off-payroll rules apply to future engagements. These might include who in your organisation should make a determination and how payments will be made to contractors within the off-payroll rules.

If your business is affected, you should take these actions immediately to ensure that you are ready for the IR35 changes. With the right approach and planning, it may be possible to maintain a flexible workforce that remains unaffected by the new legislation.

What else should you do?

You should also familiarise yourself with ‘employment status’ to avoid falling into any pitfalls. Leading regional law firm Wilkin Chapman have been working with clients and issuing information in relation to the importance of understanding this crucial area.

Although the onus will be on businesses to ensure that they are complying with the new legislation, individuals working through an intermediary (or with only one client) and recruitment agencies supplying staff through PSCs should also be aware that they may be affected.

PSCs with a mix of inside and outside IR35 determinations during the financial year may find this new legislation particularly challenging and are encouraged to implement any required changes as a matter of priority.

You can read the government’s policy paper here or visit the HMRC website for more guidance. If you are a PSC with concerns or questions about how this change in legislation will affect you, please contact us for help. Speak to Paul Tofton or call your local office today.

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