IR35 is nothing new, in fact, it has actually been around since 2000, but some significant changes are coming in April 2020 that might well affect your company. It is therefore vital that you understand what is changing and what you should be doing before the new change is implemented to make sure you are IR35 ready.
What is IR35 and How Will it Change?
IR35 relates mainly to companies who might use contractors, where these contractors are Limited Companies. Until now, it has been the responsibility of the contractor company to ensure that the income tax and NIC contributions for each individual working for them are made correctly. This depends on whether the individual is deemed to be inside or outside of IR35. The original 2000 legislation was set to address concerns raised by such individuals and to classify workers correctly. HMRC suggested that over a third of these individuals were being classed incorrectly elating to £1.2bn each year in losses to the UK Treasury.
Clearly, things were not going as hoped, so the changes are being made to address things further. The primary difference you need to be aware of is that responsibility has shifted. It is now up to the company using the services of the individual to define the IR35 status, NOT the Limited Company supplying them. In the Public Sector, the change has already been implemented. For the private sector, this will start in April 2020.
These things tend to be as transparent as mud, so step by step; this is what you need to know.
YOU become responsible for assessing whether your contractors and agency workers are inside or outside of IR35.
Any workers assessed as being inside IR35 must have tax and national income deductions made by the party who pays them.
This means direct workers become your responsibility on payroll, and those paid by the agency/company are their responsibility.
BUT it is your responsibility to determine the IR35 status and inform the agency/company accordingly if you are not actually going to be paying the individual directly.
There will be penalties in place for those failing to implement these changes correctly, but there is plenty of support available if you are unsure of what you can do. Starting now will mean you are well placed to hit the April 2020 implementation date without fear of financial penalty or loss of staff.
What Should You Do?
The first step is to assess workers and identify those engaged via a limited company that will need an IR35 status assigning. It is an excellent time to speak with your suppliers, limited companies, agencies etc., to see how they are going to remain compliant. All workers identified should be assessed, and IR35 inside or outside status confirmed. Make assessments as to any fiscal impact and seek advice where you are unsure. It is something we can assist with, so if you are finding the whole process overwhelming do seek further help to ensure you are ready for the deadline, do not leave it to the last minute!