Four key points to prepare for IR35
29th November, 2019
The legislation attempts to ensure that individuals who appear to be employed will pay tax and NI as an employee, despite them treating themselves as self-employed.
Off-Payroll Legislation (commonly known as ‘IR35’) was introduced in the UK in early 2000 in an attempt to tackle tax avoidance occurring where an individual supplied their services through an intermediary such as a personal service company (‘PSC’) to avoid paying income tax and NI.
Here are four key points to be taken away in preparation for the new legislation:
- As of April 2020, the government is set to reform IR35 rules in the private sector to align them with the rules in the public sector, resulting in a shift in responsibility for assessing the individual’s employment status. This change will only apply to medium and large companies (as defined in the Companies Act 2006). The engager will have the burden to assess and determine the individual’s employment status for tax purposes and to pay the PSC accordingly and will also be liable should HMRC deem the tax calculation is incorrect. There will be no liability on the PSC to determine the individual’s tax status.
- Should there be any parties in the supply chain between the engager and the PSC, such as an agency, responsibility of the engager to assess and determine the employment status remains. The engager is then required to pass the outcome of their assessment down to the company paying the fees to the PSC, which is usually the agency. Should the agency be unable to pay the tax for some reason, liability reverts back to the engager. Again, there will be no liability on the PSC to determine the individual’s own tax status.
- The cancellation of the 2019 Budget has left some engagers and agencies thinking there may be extra time to prepare for the implementation of the reform, in the view that it may not be going ahead as planned. This is not the case. There has been nothing released by the government to suggest any changes to the current plans, or any delay to the implementation. Anyone delaying preparation for the reform is running the risk that they will be unprepared when it comes into force, leaving them vulnerable to potentially large tax liabilities.
- Engagers, agencies and others in the supply chain should continue to scrutinise and review the policies and procedures they currently have in place to assess and determine employment and tax status, in the view that the legislation will be coming into force in April 2020 as originally planned.
If you would like to discuss IR35 in further detail, you can attend our master class in Chester in January 2020 – or contact Claire Brook, Employment Law Partner or Ben Mason, Senior Associate, for more information.
Chester – Partner
Shrewsbury – Senior Associate
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