Introduced at the turn of the Millennium, IR35 has had a unique staying power compared to other compliance bugbears.
Dreamed up by Gordon Brown (remember him?), IR35 measures intended to clamp down on what the government saw as tax avoidance by the use of so-called "personal service companies".
Fast forward to now, and off-payroll working rules have split into two sets of rules. There’s one for the public sector and another for the private sector:
In the public sector, the hirer works out whether the contractor falls inside or outside of IR35. If the contractor is deemed inside IR35, the party that pays the contractor needs to deduct tax and NICs and report them to HMRC.
In the private sector, the responsibility lies with the contractor and they’re responsible for what happens next.
The days of dual power, however, will soon be over! From April 2020, the public sector rules will be applied to the private sector. That means private businesses hiring contractors will be tasked with determining the individual’s employment status.
This change has been, to say the least, controversial. The rules shift responsibility from contractor to employer while doing little to make things simpler. Determining employment status is a tricky business, after all.
Even HMRC has trouble with it, too. The tax authority’s record fighting IR35 cases at the tribunal is patchy, to say the least, and its Check Employment Status for Tax (CEST) tool has been criticised for not being accurate.
Signs are, though, that the government will not budge on the issue. According to HMRC, the public sector rules have been a resounding success, bringing in £410 million in additional revenues.
For accountants and their business clients, there’s little else to do but to get ready for April 2020. To figure it all out, there are three guiding principles, often called the holy trinity of IR35 case law:
Supervision, direction, control – How much say do you have over how the contractor completes their work? If you compel them to work at certain times, this implies employment.
Substitution – could the contractor bring someone else in to complete the contract, or do they need to do the work themselves? If you the person can’t be substituted, they’re likely within IR35.
Mutuality of obligation (MOO) – Are you obliged to offer work, and does the contractor have to accept it? An employee can’t, for instance, turn down work.
Accountants will likely be familiar with all these points, and when the new rules roll-out your business clients will lean on you to get it right. But there’s also a deeper point around off-payroll working rules and compliance shocks more generally.
These upheavals aren’t new, and April 2020 will not be the last compliance shock. Dealing with these speed bumps -- and succeeding amid what can be a chaotic environment -- requires focus and being proactive.
One part of being proactive is having the right software in place. When your software is simplified, you can focus on what matters: compliance and client service.
Capium is a complete and connected software suite, based entirely in the cloud. One login, one software, one supplier -- it’s all about powerful simplicity in an era of compliance complexity.
Come April 2020, you’ll be there to help your clients adjust, and Capium will be there to help you deliver world-class customer service.