Implementation of IR35

Implementation of IR35 to the private sector is looking more likely

The draft finance bill was published on the 11th July 2019 and indicated that the implementation of the controversial IR35 legislation would go ahead and apply to the private sector from April 2020.

The new legislation will impact an estimated 170,000 workers. From April 2020, it will be the end client to determine whether the contract is caught by IR35 and hence ensure that tax and NI is applied and collected from contractors.

There have been many concerns raised and voiced during the consultation process but sadly many of these appear to have been disregarded.

There is a fear that many end clients will insist its contractor work force go on the payroll due to fear of any tax liability being imposed by HMRC should there be any non compliance throughout the supply chain.

It has also long been recognised that the employment status tool designed by HMRC called CEST has inherent limitations leading some to proclaim it is biased in favour of producing a status determination of within IR35.

The tool can be found here

From April 2020, contractors will need to be subject to a status assessment by the end client and IR35 applied as appropriate.

Small companies as defined by the Companies Act are exempt.

A company is deemed to be small it if meets 2 out of the 3 definitions below:

Turnover less than £10.2m

Balance Sheet assets less than £5.1m

Employees less than 50

For those businesses that operate as a partnership or as a sole trader, then it has been confirmed that the size definition above applies AND that all will be deemed to be small in the first year of the new legislation.

Where there is a disagreement between the end client and contractor as to their status, there is no independent appeal process. Any disputes are to be managed by a client led status disagreement process.

There is fear that the implementation of IR35 will increase the admin costs of businesses already struggling with Brexit uncertainty and who rely on access to a highly flexible and skilled workforce to remain competitive.

Contractors should contact their agencies and end client to start the dialogue as to the nature of the contract and their status ahead of the implementation date. If deemed caught, many contractors may consider increasing pay rates to compensate for a lower take home pay or exit the contractor market all together.

A step by step guide for end clients, agencies, recruitment firms and contractors has been written by QDOS who specialise in insurance and tax advice for contractors and can be found here.