It’s been a long journey for IR35, from its initial announcement in March 1999 to the major changes coming into effect in April 2017for Public Sector and April 6th 2020 for the Private Sector. With the private sector deadline approaching, we’re seeing more and more questions from both clients and contractors on what’s going to happen and what they need to do to be ready for it.
Let’s start with the basics: How is IR35 changing? From April 6th, end clients will be responsible for determining whether contract roles sit ‘inside’ or ‘outside’ of IR35 and employers (or “fee-payers” in the language of the legislation) in the private sector will be liable for taxing them accordingly. For contract placements that fall within IR35, it may be better for all parties involved for contractors to work through umbrella companies, particularly where agencies do not have their own payroll provision. We are already seeing some major employers in the UK indicate that they would deem all contract placements as falling within IR35, therefore placing ownership on agencies and/or umbrella companies.
Recently we’ve seen a number of high profile cases going through the courts from the public sector where the new IR35 rules are already in effect. Multiple BBC TV presenters have lost cases against HMRC in which they argued they had been instructed by the BBC to work through so-called “PSC” limited companies as a contractor. At the time of writing some of those presenters are in the process of appealing, but as it stands they’ve been instructed to pay hundreds of thousands in taxes that they have side-stepped through their use of limited companies. Hopefully, with the proper preparations, we can avoid any dramatic cases in the Financial Services world, with HMRC having suggested that will not be looking to examine past work from before the change.
I want to quickly address a common misconception at this point – not all contracts within the private sector are going to fall under IR35 and not every contractor will be better off with an umbrella or an agency payroll as a result. For specialist professionals doing project-specific analytical or remediation work, as a theoretical example, it may well continue to be viable and preferable for them to work through their own limited company. Some roles will be complex margin calls and as such for some types of contractor, it would, therefore, make sense to keep their Limited Company with which they can work through in the event the role falls ‘outside’ IR35.
We will be working closely with our clients in relation to ‘determination of status’ and contractors with regards to payroll and tax liabilities, ensuring they’re fully compliant far in advance of the deadline. Parasol is one of our preferred umbrella companies, they are FCSA accredited and we welcomed their training session this week. Working with an umbrella company is one of the ways that contractors can ensure compliance with roles that fall within ‘IR35’.
[This article is for informational purposes only and does not constitute tax advice]