The IR35, also known as “off-payroll working rules”, is a piece of legislation which was introduced to stop the avoidance of tax and National Insurance Contributions (NICs) when a worker provides their services through an intermediary.
In the past, this legislation was limited to contractors working for public authorities. However, the scope of it has changed and has been expanded to take into account contractors working with medium to large sized clients in the private sector.
The new IR35 changes come into force on April 2020 so keep an eye on it.
Will my company be affected by the IR35?
In order to ascertain if your company will be affected by this, HMRC uses a “simplified test”: Does your company has an annual turnover of £10.2 million or greater? Please note that there are a number of instances where this test will not apply – if you are an unregistered company or if you are an overseas company of limited liability partnership.
However, if this applies and you do have a turnover greater than £10.2 million and either a balance sheet total of £5.1 million or more or more than 50 employees then you must still apply IR35 rules when using services from a worker via an intermediary.
This means that ‘small’ businesses will be excluded from these new rules.
How should I prepare?
Complying with IR35 might seem like a mammoth task for you as a private sector business. However, you can take solace in the fact that public sector businesses went through the same thing a few years ago.
A good starting point will be for you to speak to your contractors about their IR35 status. This will give you the opportunity to ascertain any differences in opinion about a contractor’s status at a company level before HMRC involvement.
There is still little guidance from the government about how to settle such differences but it is worth being aware of this possibility of a dispute arising.
Talk about it
The preparation stage is a good time for clients and their workers to engage in open conversations about their IR35 status.
This can involve looking at the questions asked by HMRC’s CEST tool and using them as a starting point for these discussions.
It seems likely that there will be some cases where clients and workers disagree over determination and, regrettably, the government is resisting a statutory framework to deal with such disputes, so clients should be aware of this risk and potentially seek legal advice on how to manage it.
Awareness of the IR35 changes is key and it should be taken as an opportunity to review that tax status of your workforce and introduce changes for protecting your business from legal risks associated with IR35.
If you would like to discuss your status or you have any doubt regarding the IR35, book a call with our legal team and we’ll guide you through every stage of your legal needs.