As announced in Budget 2018, reforms to IR35 in the private sector are set to take place from April 2020.
This will mean instead of contractors being responsible for determining their own employment status for tax, the responsibility will lie with their client.
It sounds like a relatively small change, but it could have a big impact on anyone working on a self-employed basis through an intermediary, such as a limited company.
The complexity of the legislation has made it difficult, and critics say genuine freelancers could end up being penalised.
If the upcoming changes to IR35 are likely to affect you – whether you’re a contractor yourself or you engage the services of contractors – it’s essential to prepare before the reform takes effect next year.
How can contractors prepare?
Ultimately, the decision on whether IR35 applies to you will be out of your hands under the reforms, as it will be up to your client instead.
What you can do is review your working practices in light of the rules, and see if you might be affected when the changes take place.
You can assess your employment status by taking HMRC’s Check Employment Status for Tax (CEST) test.
How can businesses prepare?
If you use the services of contractors in your business, you’ll need to be prepared to apply the rules. The Government’s guidance on the topic consists of the following four steps:
- Look at your current workforce, and identify any people providing services through personal service companies.
- Determine whether the rules apply to any contracts that will still be in place in April 2020. Again, you can use the CEST tool to work this out.
- Talk to contractors about whether their role falls inside or outside of IR35.
- Set up processes for determining whether the rules apply on future engagements.
IR35 reform has been a controversial topic since it was introduced in the public sector in April 2017.
Some professional bodies say its complexity puts too much of a burden on businesses and could unfairly affect contractors.
The Association of Chartered Certified Accountants called for the private sector rollout to be delayed for another year, saying the reform “could create a complex web of new rules and liabilities throughout supply chains”.
The Association of Independent Professionals and the Self-Employed has campaigned against IR35 altogether, saying it unfairly punishes freelancers who legitimately use a limited company model.
Research shows 59% of UK firms are planning to take a “blanket approach” rather than reviewing each case individually, and 48% would hire fewer contractors because of the rules.
Get in touch
As it stands, IR35 is set to take effect for private sector contracts in less than a year’s time, subject to any changes made when the Government publishes a paper on IR35 imminently.
Understanding the legislation now will put you in the best position to adapt to the changes when they come in.
For help navigating the new rules and understanding what you need to do to prepare, talk to us.