Having been postponed from 2020, major IR35 changes are due imminently, and it is important that organisations and individual contractors alike understand and prepare for the changes.
Having been applicable to the public sector sine 2017, they will be coming to the private sector soon. HMG’s rationale is that individuals who conduct engagements ‘as employees’ but operating through such as a Personal Service Company (PSC) or third-party contracting firm, should pay pretty much the same tax and National Insurance (NI) contributions as a paid employee.
In short, if you fall within IR35 rules, then you are deemed to be of employee status, if the employee of the organisation if the private service company (PSC) you operate through wasn’t in place.
There are essentially three ‘tests’ which determine which side of the fence one falls, and it is the client, rather than the contractor, as was previously the case, who assess where the IR35 rules apply or not.
Initially at the moment the new rules will only apply to large and medium firms; and if a contractor provides services to a small private sector client, the worker’s intermediary will be responsible for deciding if the rules apply.
The proposed changes will place responsibility for assessing whether IR35 applies or not onto the private sector user, in other words the. As it stands at the moment, the proposed new rules will only apply to medium and large businesses.
If the client does deem that that IR35 applies, then the fee payer (client) will become responsible for accounting and paying the related tax and NI contributions, including the additional cost of employers’ NI contributions, to HMRC.
The proposed changes come into effect on 6th April 2021.
In such circumstances clients will have to produce an IR35 ‘Status Determination Statement’ (SDS) before a contract formally commences, which will formally declare a contractor’s deemed employment status following an ‘IR35 assessment’; and justification and explanation for this decision.
Worryingly for such contractors hoping to commence such roles on or after 6th April 2021, research suggests that just below 50% of assessed contractors were not provided with an SDS, that 55% of this group have received no reasons for status determinations, potentially rendering the SDS legally invalid.
Directly or indirectly, the potential message sent to contractors suggested by the research is not positive and does nothing to help encourage or support entrepreneurial talent, not help contractors prepare for engagements.
Failure by organisations to prepare for these IR35 changes could also potentially have serious compliance, risk and operational implications, especially if, as some contractors are already doing, they decide to return to salaried employment, or move to organisations and groups who are deemed to treat them better and offer better support which in turn provides stability.
There are also real fears that many self-employed contracts could be very badly effected if firms become risk adverse and erroneously designate contractors under the new regulations.
Contractors and organisations alike need to understand and prepare for these IR35 changes immediately, if they have not already done so.
Readers seeking fuller details and information can go to:
https://www.gov.uk/guidance/understanding-off-payroll-working-ir35
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