What is IR35?
IR35 is a legislation introduced in 2000 that prevents individuals from setting up as a company to avoid tax and National Insurance contributions. IR35 is designed to ensure that the contractors working via limited company are working the same as employees and hence must pay the same tax. Earlier, the employment status was determined by the contractors and not the hiring party.
The new reform says that the private sector will be responsible for determining the employment status of the Personal Service Company workers they engage with, from 6th April 2020. With the clock ticking for April 2020, it is essential that the private-sector firms realize that the IR35 reform can be managed and they should start preparing for it immediately.
The workers who fall within the IR35 legislation will require to let the PAYE and National Insurance Contributions be deducted from their Income at source. The agency or the end client will be responsible for deducting the relevant tax and NIC on behalf of the worker, prior to paying the PSC’s fees. The rules are similar to that of ‘off-payroll workers in the public sector’ which came into force from 2017.
The changes mean that the party (client or recruiter) is responsible for paying the contractor and he is liable if HMRC decides the contractor’s IR35 status has been wrongly determined. So it is important to make the IR35 status decisions accurately.
The reform was introduced in the Autumn Statement 2018 budget. The hiring party has to provide ‘status determination certificate’ to the contractor as well as the agency. The certificate must include the employment status decision and the reason behind this decision. The off-payroll working rules require cooperation between the agency and the end user in determining and applying the employment status of the worker.
Tips to prepare for IR35 reforms
- Make use of HMRC CEST service to determine if off-payroll apply for any of your contracts.
- Talk to an expert (contractor) if the off-payroll applies to your role.
- Determine the employment status of the Off-payroll workers.
- Liaise with a personal service company and aware them of the changes and decisions to ensure there are no walkouts.
- It is important to train the internal resources on IR35 so that they stick to the rules.
- Any status on the contract needs to be informed to the agency (fee-payer). If it is determined that the worker is operating Inside IR35, the agency will have to deduct PAYE and NICs as though the worker is an employee.
Reliasys - Prepare IR35 Reform
Understanding the IR35 reforms can be daunting and confusing. Many public sector clients are benefitting with Reliasys IR35 solution. Get in touch with our team for more details. Call: 020 3500 2615