IR35 has proved to be a controversial subject in the recruitment sector in recent months (years) and it can be difficult to keep abreast of all the changes and recommendations that have been made.
Let’s start with the basics; what is it?
IR35 is a phrase that is a tax legislation designed to curb tax avoidance by so-called contractors and the businesses that are hiring them. In most cases these tax-avoiding workers and firms are working together via an intermediary, such as a limited company and the workers could easily classed as an employee rather than a contractor.
If these workers are ‘deemed employees’, then they would have to increase the rate of income tax and National Insurance Contributions that they pay which would obviously have a significant impact on the worker’s net income.
IR35 has technically been in force since April 2000 but has been heavily criticised and has been accused as being poorly conceived, badly implemented and causing unnecessary adversity for genuine contractors and small businesses. Because of this, a new version of IR35 was introduced into the public sector in April 2017, with the roll-out into the private sector set for April 2020.
Despite the many arguments about its pros and cons and the controversy it has caused, it now looks set that it really will come into effect on 6th April 2020. Although the chancellor made no mention of the reforms during the Budget speech on 11 March, the accompanying Budget Red Book confirmed the reforms are set to go ahead as expected without delay. The book states that: “The government believes it is right to address the fundamental unfairness of the non-compliance with the existing rules, and the reform will therefore be legislated in [the] Finance Bill 2020 and implemented on 6 April 2020”.
Whether you think it is fair or not, the reality of the situation is that the reforms are coming, and it is time to ensure that your business is, and will remain, compliant.
White Label has been working hard to ensure that we are completely up-to-speed with the changes and we are now perfectly positioned to help all our clients to support both clients and candidates in regard to the IR35 legislation.
We spoke to our Contract Team Leader Megan Smith to get the lowdown on IR35 and how White Label can help. Read on to gain from her understanding into this complex subject:
How does IR35 work currently?
IR35 is a tax legislation that allows HMRC to govern tax making sure that the correct taxes are being paid by those self-employed. At present, a Contractor determines whether or not they sit inside or outside of IR35. ‘Inside’ means that contractors are technical employees and therefore should be paying tax and national insurance like one too. Being ‘outside’ of IR35 means that a contractor is independent to their client and therefore are not deemed as an employee so do not have to pay typical PAYE taxes.
What will change in April 2020?
As mentioned, at present the contractor determines their IR35 status. As of 6th April 2020, the end client will be responsible for determining whether or not a contractor or contract role is inside or outside of IR35. As well as this, if a contractor is deemed inside IR35, then the fee payer (either the agency or client if contractor is direct with them) is responsible for deducting the relevant tax and National Insurance before paying the contractor.
What can I do as a contractor?
Start asking your client or prospective client the question of whether or not they believe the role to be inside or outside of IR35.
What can I do as a client?
Start the process of collating all your contractors and doing IR35 reviews on all the contract roles you have, we would recommend doing this as soon as possible. This is something that White Label can help with should you require. We have a brilliant IR35 assessment tool that has been created by Advance alongside EY that is backed by a Solicitors. I could come onsite to do the assessment with you, and you will get a copy of the result. We also suggest that you do the CEST (Check Employment Status for Tax) review as well.
How are you feeling about the IR35 changes?
This is actually a question I’ve been asked a lot and my response has been a positive one. Clients need a contractor for a reason and that’s not going to change on April 6th 2020. Once processes are put in place, then the process of taking on a contractor or having a contractor onsite will be pretty straight forward as long as those processes are always followed and are as transparent as possible to the client, contractor and agency.
If you have any further questions, please give me a call to discuss further on 0161 714 4478 or firstname.lastname@example.org
**Please note that we’re aware of the governments delay to IR35 reform until April 2021 amidst the COVID-19 pandemic. We shall continue to support customers to ensure compliance ahead of the change.
**Please note that although we have made sure that we as a business have processes in place and are on top of the changes that are happening, our advice should not be deemed as legal advice in anyway and you should always speak to a legal professional for that.
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