On 6 April 2020 changes will be made to the off-payroll working rules (otherwise known as IR35).
IR35 is designed to crack down on "disguised employees". It will apply if an individual provides their services through an intermediary but they would be classed as an employee for tax purposes if they were engaged directly.
The changes will affect all but small private sector organisations that engage individual contractors/consultants through intermediaries such as personal service companies (PSCs). The private sector includes organisations in the charity, care and housing sectors.
IR35 will require organisations engaging these individuals (whether contracting directly with the PSC, or via a third party such as a labour agency) to assess if the IR35 rules apply to the engagement. Currently this is the PSC's responsibility.
Assessing whether IR35 applies isn't always straightforward. Both the contract in place, and the reality of the situation, will be relevant. If IR35 does apply, the individual is treated as a deemed employee for tax purposes and income tax and national insurance contributions must be deducted through PAYE.
After you have made an IR35 determination you will have to communicate your decision whether the engagement is "inside" or "outside" IR35 to the PSC or agency you contract with (and this must be escalated up the supply chain if relevant). You must also be ready to deal with any disputes.
A majority of the respondents to a survey we carried out a few months ago said they will be affected by IR35 but felt they were not ready. With only just over six months to go, if IR35 affects your organisation you need to be preparing.
You should ensure you understand the full implications of IR35 and what your responsibilities are. You will want to audit your workforce and identify how many PSCs you engage, in which part of the business they sit and whether you engage them directly or via an agency. Part of the planning will also involve designing and implementing robust systems for assessing IR35 status, and ensuring the data you are considering both now and in the future is accurate. You will need to make sure HR, finance, procurement and payroll teams are involved.
The legislation is in draft form at the moment. Keep an eye out for further Government guidance and an update to its CEST (Check Employment Status for Tax) tool.
How we can help
We can provide you with the support and advice you require to manage the introduction of IR35. We can also offer the following for fixed fees:
A meeting to discuss strategic advice on IR35. This might involve considering some of your engagements where the IR35 status isn't clear cut; A simple guidance note introducing IR35 aimed at managers; and A template contract with a PSC.
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