Making Sense Of The New IR35 Rules
The draft legislation detailing the changes to off-payroll working in the private sector, which will be implemented from April 2020, has now been published. The new measures extend the existing rules that have already been implemented in the public sector to both the private sector and third sectors.
First introduced by the UK Government in 2000, IR35 was implemented to ensure that employees, or individuals who provide their services through a limited company (a personal service company, or PSC), incur broadly the same tax and national insurance liabilities as an employee. In addition, the liability to decide whether IR35 applies and to pay any employment taxes rests with the PSC, i.e. the company engaging the services of the contractor.
From 6 April 2020, medium and large businesses in the private and third sectors will be responsible for determining whether the IR35 rules apply to the PSC, and will also be required to operate PAYE and pay employer’s National Insurance contributions (NICs). The new legislation will not apply to small businesses which engage contractors through PSCs.
If a business engages a PSC through an intermediary, i.e. an agency, the agency will be required to operate PAYE and pay NICs if the engaging business determines that IR35 applies. The business will still be required to pass their determination to both the agency and the contractor, and if the agency fails to pay any PAYE or NICs due, the liability will pass back up the supply chain to the engaging business.
With just over 8 months to go before the reforms are due to be rolled out, our Employer Solutions Taxperts would suggest businesses should start reviewing their current workforce, including those engaged through agencies and other intermediaries. This will allow them to identify those individuals who are supplying their services through PSCs and assess the impact of these changes post April 2020 and start the process of discussions with contractors.
There is still a lot of detail to follow, and HMRC have confirmed that guidance will be forthcoming. However, for complicated arrangements, this may take some time to resolve, so taking advice early will be beneficial. For more information or advice on the new IR35 rules, please contact our Employer Solution team.