Did you know IR35 has been floating around on the tax landscape for the best part of twenty years?
IR35 was Introduced as a way to prevent ‘disguised employment’. The main objective being to identify contractors working as self-employed and thus exempt from paying certain taxes. IR35 is an attempt to uncover these contractors. The law believes they are really no different from the hiring company’s employees and in turn should be taxed the same.
All clear so far? It sounds relatively straight forward in theory. However, it’s safe to say this confusing tax reform has got many employers, recruitment agencies and contractors scratching their heads, as they try and make sense of it all.
On 6th April 2017, IR35 changes came into force within the Public Sector. From this date, responsibility for determining a contractors IR35 status was shifted from HMRC to the end client. Within the public sector, the end client could mean the BBC, NHS or The Bank of England.
The same change is now being introduced into the private sector. From April 2020, if you are an individual contractor, you will no longer being allowed to determine your own IR35 status. Instead, under the new rules, recruitment agencies like us or private sector companies will be responsible for deciding if a freelancer or contractor’s employment status is correct.
FIVE QUESTIONS WE ARE FREQUENTLY BEING ASKED:
1. Who will the tax reform affect?
If you’re a contractor or freelancer and have structured your business as a personal service company (PSC) or Limited Company, the changes to IR35 in the private sector will apply to you. This means that you could see a change in the way you pay tax.
2. What does ‘Inside’ or ‘Outside’ of IR35 mean?
If you’re a contractor and deemed as working ‘Inside’ IR35, you are being categorised as the same as an employee of the company. This will result in you being fully taxed at source, before receiving any pay, rather than receiving a gross pay.
As a contractor working ‘outside of IR35’, you will see no change to your tax status. This means, you will still get paid a gross sum. You will still be able to pay yourself a salary and remain responsible for your taxes as usual.
Contractors or freelancers who work for numerous different companies should be able to continue to work outside of IR35. However, if you work for just one company you could well be determined as working inside IR35 and liable to pay the same taxes at source as a standard employee.
3. What is a Blanket IR35 Assessment
Since the responsibility of determining contractors IR35 status has shifted to the employer / end client, there has been numerous cases of employers taking a safe, one size fits all approach when it comes to deciding whether contractors fall inside or outside of IR35. Unfortunately, this ‘blanket’ approach has left many contractors feeling they have been incorrectly categorised as working ‘inside’ IR35.
4. Why have these changes been introduced?
The Government has argued that contractors who pay less tax than employees, when there’s no difference in their actual working status, is unfair. Unfortunately, determining an individual’s IR35 status is less than straightforward. HMRC has introduced an online tool to help – CEST (Check Employment Status for Tax) to help. Unfortunately, the tool does have its limitations and has come under some criticism.
5. What can I do next?
You can find a lot of information, podcasts and guidelines online regarding IR35 – specifically for freelancer/contractors, hiring companies and recruitment agencies.
For those of you who prefer a more face to face approach, search for IR35 seminars or talks that are taking place over the next few months.
WHAT WE ARE DOING TO HELP YOU:
We are running two free, IR35 seminars, this coming September. One for contractors and the other for clients, who typically employ a number of contractors into their teams.
The seminars will be specifically tailored for professionals working within Project Management, Change Management and IT / Digital Transformation.
Our seminars will be hosted by a panel of carefully selected experts, including representatives from EY, Umbrella and Legal. The team will be armed with the most up to date information. They will be on hand to answer questions, address concerns and provide step by step practical advise. You do not need to be an existing client or candidate of ours to attend. The seminars are free of charge but spaces are limited, so book your place today.