Strategic People

The Chancellor revealed in his 2018 Budget that the IR35 ‘off payroll’ rules will be extended to the private sector from April 2020 onwards. Simultaneously, affecting a large number of contractors and businesses across the UK. What does this specifically mean, and what can contractors and hirers do to prepare in advance?

What does IR35 private sector rules mean?

 The Intermediaries Legislation (IR35) has been around since 2000 with a very simple agenda: to remove the tax advantages of providing services via a limited company for individuals who are not truly in business on their own account. In other words, the rules are aimed at ‘disguised employees’ who fill the responsibilities of a permanent position in a company without paying the corresponding income tax and National Insurance (NIC) contributions a traditional employee would.

Despite numerous amendments to IR35 over the past 18 years, each Government has battled with the claim that too many limited company owners are still illegitimately working outside the rules.

Back in 2017, IR35 was introduced for contractors working in public sector organisations. Instead of contractors themselves being responsible for determining their IR35 tax status, the hirer took on this obligation. Where the contractor is found to be ‘inside’ IR35, the hirer must deduct employees’ NIC and income tax from the contractor’s pay, as well as paying employers’ NIC.

Since, the process, tools and systems in place for hirers to determine contractor’s IR35 tax status have been widely criticised. In 2017, Dave Chaplin, CEO of ContractorCalculator, who has covered the legislation from inception declared that IR35 should be suspended without delay, to prevent further damage to essential public services. HMRC themselves have admitted that the CEST tool they developed to assist with the decision making does not meet the standards of ‘reasonable care’, therefore it can be difficult for hirers and agencies to determine an accurate tax status of an individual contractor. 

What happens Next?

Regardless of the warnings the Government moved with their plans for IR35 private sector implementation, but have delayed it to 2020, rather than 2019, in the hopes that this time people will have more time to prepare. A consultation on how the rules will be rolled out in practise is expected to be launched early 2019. 

Within that preparation time, hirers and agencies are expected to take ‘reasonable care’ when dealing with each contractor’s tax status. The hope is that in the consultation, the true meaning of this will be clarified. In the meantime, the best action is to learn from the mistakes made in the public sector. Companies who panicked and made brash decisions to blanket define their staff as ‘isndie’ or ‘outside’ IR35 have since been wildly criticised. Despite the additional admin work, the best practise is to analyse each contractor individually to determine the tax status.

How can we help? 

Quite rightly, hirers are looking to their agencies to assist them with this new compliance challenge and the better agencies are now beginning to prepare their clients for the new rules.  The starting point is to understand the new rules and to understand the current profile of your existing contractor workforce.  To help with this Strategic People is trying to be proactive in our approach of educating our clients and contractors on the changes.

Luckily, we are well educated in the legislation and have a dedicated team offering to assist in the preparations. In order for us to support our network through the process of determining Contractor’s tax status, we would need some further information from the individuals and would like to set aside time to gain a fully comprehensive understanding. If this is something that you would be interested in, please email us here and we’ll be in touch to arrange. 

We’ll also be hosting an event in January 2019, where we’ll share, alongside an industry expert guest speaker our thoughts, plans and actions for IR35 initiation. For updates on this event please follow our page.