IR35 Is Changing! But What Does That Mean?
If you have any friends, associates or even business contact who are contract workers, ask them what the worst parts of their job are. In amongst all of the industry-specific tasks and a few odd annoying jobs, you can bet that somewhere in the ‘worst bits’ list will be the phrase ‘IR35 Legislation’. In fact, IR35 has been the bane of many contractor’s lives for the last 20 years, and it certainly one of the least popular pieces of legislation ever aimed at one sector of workers – and for many reasons.
But now, things are changing. And as well as being a pain for contractors, it’s also going to impact the people who hire them. So if you work with or hire contractors, you need to read this one carefully.
What Is IR35?
In case you’ve never heard of it before, IR35 is a legislation that was introduced in April 2000 as a way of stopping contractors from avoiding PAYE and National Insurance contributions. The long and short of it is that IR35 determines whether contractors working in a limited company could for any reason be considered to be employees of a particular client rather than freelancers or contractors. This is mainly because a lot of contractors were setting themselves up as Limited Companies and then providing services to just one client, as a way of avoiding having to pay extra fees and taxes. HMRC caught onto this pretty quickly, and so IR35 was born, and enforced heavily.
New Changes to IR35
The IR35 regulations haven’t changed since they were first brought in 20 years ago. Until now. This April, there are going to be some changes to how it all works, and more crucially who is responsible for deciding what.
At the moment, the obligation to determine worker status falls onto the contractor themselves, and it is their responsibility to make sure IR35 is being followed. But from April that will change, and the responsibility for determining whether the off payroll working rules will apply will move onto the business receiving the services. In other words – if you hire contractors, you now have a new job to do. Luckily, HMRC has some guidance to help you prepare for the changes:
- “Look at your current workforce (including those engages through agencies and other intermediaries) to identify those individuals who are supplying their services through personal service companies.
- Determine if the off-payroll rules (IR35) apply for any contracts that will extend beyond April 2020. You can use HMRC’s Check Employment Status for Tax service to do this.
- Start talking to your contractors about whether the off-payroll rules apply to their role.
- Put processes in place to determine if the off-payroll rules apply to future engagements. These might include who in your organisation should make a determination and how payments will be made to contractors within the off-payroll rules.”
You can find out more about these changes and who it affects by clicking here.
As you can imagine, these changes not only make a big difference to the overall income of contractors, but to how businesses approach working with contractors moving forward. If you need help and support in staying on the right side of IR35, or understanding these new changes, we are here to help. Just get in touch with the Herefords team today to book your consultation.