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IR35 legislation was launched in 1999, the IR35 legislation also known as Intermediaries legislation became law through the Finance Act in 2000.

IR35 is tax legislation that is designed to combat tax avoidance by workers supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used. Such workers are called ‘disguised employees’ by Her Majesty’s Revenue and Customs (HMRC).

Chancellor Philip Hammond chose the Autumn Budget 2018 to announce that IR35 public sector reform will be extended to the private sector opening “a new chapter” in UK’s economic future. Private sector IR35 reform is all set for April 2020. The aim is to close gaps that allow people working through personal service companies mainly to avoid tax contributions. According to the government, it amounts to a staggering £1.3bn by 2023-24.

The legislative change was first rolled out in the public sector in April 2017 and plans to extend ‘Off Payroll Rules” in private sector by April 2020. This effectively means that the private sector employers hiring contractors will be responsible for determining IR35 status.

These changes aim to increase compliance with the IR35 ‘off-payroll’ rules that have been in place since 2000. It will directly affect several businesses and contractors and it’s essential that UK businesses contractors’ get ready to start preparing for this change as soon as possible.

Leverage HMRC’s CEST Tool:

The ‘Check Employment Status for Tax’ tool, known as CEST, is an online tool created by HMRC that presents a series of questions to help determine the employment status of a contractor for tax purposes.

The tool was introduced to help determine the tax status of an off payroll worker to identify the roles that are clearly inside or outside IR35, however, more often than not, the tax status is left undetermined while the tools directs to be contacted to HRMC via email or phone for further assistance. This aspect being time consuming and a probable grey area hampering the smooth execution.

Criticisms of IR35

  • Denying contractors of employment rights.
  • Brexit uncertainty has already put freelancers’ confidence to an all-time low
  • Reforms led to rampant and large-scale contractor backouts, causing disruption, staff shortages and even the withdrawal of significant projects
  • The Off-Payroll rules threaten a reduction in workforce mobility and access to critical skills
  • Substantial administrative and cost burdens for businesses required to assess and process income for contractors

 
Who will be impacted by the new IR35 rules?

The new rules will apply to:

  • Both medium and large businesses mainly in the private sector that are the end user of the worker’s services,
  • The fee-payer, in case different, such as fee-payers in the recruitment sector, and
  • Contractors providing services to both medium and large businesses

 
Who is exempted from IR35 Rules?

The government has decided that the smallest organizations will not be affected by this reform and will not need to determine the status of the off-payroll workers they engage. In these situations, the intermediary will continue to be required to make the necessary determination and operate PAYE where appropriate.

Companies Act 2006 definition of small business

  • Turnover not more than £10.2 million
  • Balance sheet not more than £5.1 million
  • Number of Employees not more than 50

 
How to prepare for IR35 Changes?

It might be tricky to determine current temp workforce employment status, but for the UK Plc’s it is important to start looking from today which can help in evaluating work force and implementing necessary changes to overcome IR35 effect. Thankfully, there are easy ways you can make sure you’re adhering to IR35 rules accordingly:

  • Map your ongoing work force
  • Identify workforce supplied via PSCs
  • Assess PSC workforce IR35 status
  • Risk Assessment
  • Update contracts
  • Review payment processes
  • Communicate and update work force on Off Payroll rules
  • Understand the potential cost and Legal impact

 
Seek Expert Advice

Consult specialist advisors or professional body before making any changes to how you conduct business and to make sure any changes you make are still compliant with IR35 and other laws and regulations.

IR35-Reforms

Initor Global can assist in eliminating the hassle by providing outsourced payroll expertise and removing the legislative burden, which impacts your financial goals. With our payroll outsourcing services, you can get peace of mind to concentrate on your core business.

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