Welcome to IR35 Compliance
In April 2000, the UK government introduced a counter tax avoidance policy aimed at contractors operating through Personal Service Companies (PSCs). Properly known as the "Intermediaries Legislation", it is more commonly referred to as IR35. The onus for the determination of IR35 status rested with the PSCs.
IR35 has had a profound effect on the contract market in the Public Sector since the changes implemented in April 2017; where determination was transferred from the PSC to the end client.
Proposed government legislation, scheduled to come into force in April 2020, will see the change to the legislation rolled out to the private sector. Private sector companies can save significant sums of money by preparing for the changes in legislation. At IR35 Compliance, we have solutions that can help you ensure that your company is ready to meet these changes and gain a competitive advantage over those that don’t proactively prepare.
The government is expecting to recover £3bn, over 5 years, by extending IR35 to the private sector from April 2020; according to their own figures. Assuming the majority of medium/large companies act early to remain IR35 compliant, this will come from those companies that do not act. You can start your preparations today!
Effects of IR35
The majority of contractors prefer to work Outside IR35. Those that are willing to work Inside IR35 tend to command a rate that accounts for the difference in taxes.
If your contractors are currently declaring themselves Outside IR35 and you decide to place them Inside IR35, then they have three options:
- Accept the change and pay the additional tax.
- Accept the change and demand a rate increase to mitigate the additional tax.
However, it's unlikely you will retain your current contractor team; even by increasing their rate. Contractors in a similar position, when the changes were introduced to the Public Sector, were fearful of HMRC retrospectively applying the Inside IR35 status to their previous time in the same role whilst declaring themselves Outside IR35. Their fears were realised.
In the event you decide your contract roles are Inside IR35, and the contractors that you have had in the past deemed the role Outside IR35 then you will lose the existing contractors (picking up the cost of recruitment, on-boarding, getting up-to-speed) and you will have to payer higher rates to find contractors of similar capabilities/experience.
You can see the effect on this increase using our cost calculator:
In addition, there is a growing call for Inside IR35 Contractors to receive employment rights. You can proactively prepare for this eventuality by starting your IR35-compliant preparations now.
Will IR35 Affect Your Company?
The draft proposal for the roll out of the IR35 changes to the Private Sector are based on company size. You can assess whether your company is likely to be affected in our calculator:
Our Lead Consultant facilitated the first IR35 compliant engagement at HMRC; post the April 2017 changes to the Public Sector. You can read the HMRC Case Study.
Find out if your organisation is affected by the proposed changes by taking our quick and simple Basic Assessment.
IR35 in the News
HMRC appear to be increasing the pressure on contractors working through Personal Service Companies (PSCs) in the Public Sector; in relation to IR35. The time for implementing the IR35 changes is fast approaching for Medium/Large Private Sector companies.
HMRC are aggressively pushing contractors to supply them with information concerning:
- Compliance of the rules regarding IR35.
- Tight deadlines for responses.
- Pushing the Check Employment Status for Tax (CEST) tool and implying it’s mandatory.
- Mentioning penalties for non-compliance by contractors – adding pressure to make incorrect decisions.
A few comments:
- It’s now the responsibility of the Public Sector organisations to ensure compliance of the rules. Should HMRC be putting pressure on contractors in this regard?
- Medium/Large Private Sector companies will be responsible for this determination under the proposed new rules.
- HMRC have admitted that the CEST tool is not mandatory so why are they implying it is?
You can read more on our news page or by clicking an article in the list below.