Monday’s budget saw Phillip Hammond announce, as expected, that the IR35 (off-payroll working) rule is to be rolled into the private sector, to bring it in line with the public sector. HMRC introduced the controversial IR35 rules for the public sector in April 2017. Instead of the contractor having responsibility for determining their employment status, the client or hirer now needs to make the call. They would be liable for any missing tax if they got the decision wrong.
The changes for the private sector will happen in April 2020, rather than 2019, which will see many organisations breathe a sigh of relief. But it’s important to reiterate that this is not a chance to sit back and relax, more a much-needed opportunity to proactively prepare for the shift.
For those unfamiliar with the IR35 guidelines, HMRC explains the rules thus:
- It is fair that two individuals working, in the same way, pay broadly the same income tax and National Insurance contributions (NICs), even if one of them works through a company. The off-payroll working rules were introduced in 2000 and require that individuals who work as employees, but through companies, pay similar taxes to other employees.
- Contractors who do not comply with the rules pay significantly less income tax and NICs than an equivalent employee. HMRC estimates the cost of non-compliance to the exchequer will reach £1.3 billion a year by 2023-24.
- The reform will bring the private sector in line with the public sector, where evidence suggests compliance has improved since the reform was introduced in 2017. HMRC estimates the reform has raised £550 million in income tax and NICs in its first year.
- The off-payroll working rules only affect people working like employees and through a company. They do not apply to the self-employed.
What’s interesting, is that consultancy, freelancing and sub-contracting across the business world is steadily on the rise (as covered in our previous blog here). Portfolio working is becoming a new norm in the digital world, meaning that the potential impact of this roll out to businesses is huge.
RPS has been assisting with IR35 for our clients for some time and we are well versed in this area thanks to our work with the public sector and the BBC. We’ve removed the headache of managing IR35 for the client thanks to the unique way our work packages are delivered. By taking ownership of projects and transferring the risk and delivery to us, we remove the need for businesses to bring in contractors to deliver short-term projects – and as such, the IR35 ‘issue’ is managed by the RPS team.
With Brexit and many other issues for businesses to get their heads around over the next few months, now is the time to look at how to best manage the IR35 impact ahead of time. 2020 is only a stone’s throw away. We’ll be featuring more insight on IR35 in readiness over the coming months.