IR35: Are you in pole position to advise?
On 6th April it’s all change for IR35, with reforms to off-payroll working kicking in. The new rules flip the tax liability from the individual, over to the organisation engaging them.
It means private sector firms hiring workers through a personal service company (PSC), or similar type of intermediary, must check and decide if that worker should be treated as an employee for tax purposes.
Off-payroll rules are nothing new; in place since 2000, the aim has always been to ensure individuals working through a limited company pay largely the same tax and NICs as an employee. Loopholes were found and rules abused, so the Government is clamping down. The public sector was the guinea pig in 2017 and now the rollout reaches the nation’s bigger businesses in the private sector – and the vast array of contractors supporting them.
Here, the IRIS Keytime team helps you to keep on top of the new IR35 rules with these three steps:
- Pinpoint which clients the rules might apply to – contractors or businesses – and ascertain their knowledge and readiness. HMRC’s Check Employment Status for Tax service helps determine employment status. Criteria like working exclusively for one firm, having an obligation to provide a service, not providing a substitute worker if needed, can all be features of a ‘disguised’ employee.
- For contractor clients, their income could take a hit with the new IR35 rules, as they likely enjoy tax perks like dividends, lower NICs and expenses by operating through a PSC. However, there might be other employment routes, such as zero hours contracts, worth exploring. They may also need guidance on conversations with clients, especially if the employer is now footing a bigger tax bill and may pass the cost on. You can outline their options, analyse their employer relationships, minimise liability, maximise their income and help them stay compliant.
- Any medium or large businesses must consider their workforce, including those via agencies or intermediaries, who provide a service through a PSC. They will lose out on the tax advantages of these typically more casual relationships, where the costs of PAYE, NICs and employee benefits are swerved. It’s not all bad news though; if there is scope to bring skilled individuals into a business, this might well become a timely opportunity to do so. There will be cases where the contractor falls outside IR35, but the employer must take reasonable care and evidence it clearly to stay compliant. You can help audit contracts and relationships, support with status determinations, evaluate options and provide creative solutions.
While non-compliance is punishable, the Chancellor has confirmed the first 12 months will be a ‘soft landing’. The Government acknowledged that levels of preparedness varies, but nonetheless they are pressing ahead with a view to looking at the impacts of the reform in six months. One useful area they recently clarified was that the rules will only apply to payments made for services delivered from 6th April 2020 onwards and not retrospectively, so from next month, it’s all change but with a clean slate. You can find out more from the Government here – including some useful guidance on how to prepare.
There will be clients on your books feeling woefully behind with IR35 knowledge and readiness, which is totally understandable. But the lack of official guidance is going to put accountants in pole position to give advice and a helping hand. Fundamentally the new off-payroll rules are a tax issue, so there’s massive potential to provide support, if you want to rise to the challenge.