Off-payroll working (IR35) rules to apply in the private sector from 6 April 2020
In April 2020 the government plans to introduce a new set of rules around contractors who use a ltd company and work in the private sector. These changes were introduced in 2017 for public sector contractors and these new changes could affect you.
At the moment nothing is set in stone. The HMRC has published its final consultation about the new IR35 regime, set to come into effect from April 2020, and we expect the draft legislation will be available in the summer and published in the autumn.
Currently, where you supply your services through an intermediary, such as a personal service company (PSC), it is up to you to decide if IR35 applies. However, from 6 April 2020, it will be up to your end-client to decide.
The client will be required to decide a worker’s employment status and communicate that determination to the worker. If IR35 applies you are considered a deemed employee — this means that, in the absence of the intermediary, you would be treated as an employee of the client. In which case the client will be liable to make deductions for income tax and NICs and pay any employer NICs.
As currently applies in the public sector, statutory payments and other employment rights will not be affected by the proposed reforms to off-payroll working rules. This means that the deemed employment relationship for tax purposes will not result in employment rights or statutory payments obligations for the deemed employer.
There will be a legal obligation on your clients to provide you with their determination as well as a reasoning for the determination. They are also required to exercise ‘reasonable care’ when making their assessment, so as to prevent blanket bans on the use of PSCs, as we saw in the public sector. HMRC has, however, indicated their approval of role-based assessments under certain circumstances. Again, all this has yet to be confirmed.
The small company exception
The reforms will only apply where the client is a medium or large business, or a public body, which means there is an exception for contractors who have clients who are small businesses.
HMRC has chosen to use the definition of ‘small company’ in the Companies Act 2006. A small business is a company which meets two of the following conditions in a year:
- annual turnover not more than £10.2 million
- balance sheet total not more than £5.1 million
- not more than 50 employees.
Use the time until the new rules take effect to review your working practice, and contracts with your clients and discuss changes that might be needed to avoid IR35 or renegotiate terms where this isn’t possible.
Get an independent review of your working conditions as well as your written contract. There various contract review services available to contractors, and although we are not affiliated with any of these companies, the most commonly used ones are Bauer & Cottrell and Markel.
IR35 has always been a hot topic for contractors and over the years we have covered this extensively.