Private Sector IR35 Reforms: What It Means for You

Private Sector IR35 Reforms: What It Means for You

30 October 2018

The Treasury released new guidance on off-payroll working (IR35) in the private sector yesterday, following the Chancellor’s Budget speech.

Following a consultation on the rules, some commentators expected IR35 reforms to take effect from next year. But the policy paper reveals that the changes will be introduced in April 2020, giving businesses more time to prepare for the reforms.

We’ve combed through the policy document, picking out the key points so you can understand how the changes will affect you.

Clients will be responsible for judging an individual’s employment status

To “increase compliance with existing off-payroll working rules (IR35) in the private sector”, businesses will assess a contractor’s employment status.

At present, this responsibility falls to the contractor and the rule change will bring off-payroll rules in the private sector into line with off-payroll rules in the pubic sector.

The smallest businesses have nothing to worry about

The changes will not apply to the smallest 1.5 million businesses. They will only apply to medium and large businesses, who will have until April 2020 to meet the requirements.

The changes won’t apply to the self-employed

Off-payroll working rules only affect people who are working like employees and through a company. When judging whether IR35 applies, the client will take account of how a contractor works.

If a contractor is required to work on-site; is supplied with equipment; is directed in their work or is leading a team, they are likely to be judged inside IR35.

HMRC will improve the Check Employment Status for Tax (CEST) service

HMRC’s CEST tool, to help contractors and clients judge the IR35 status of a contract, has come under a large amount of criticism.

Several recent CEST judgements have been overturned by courts. The policy document says that HMRC will continue to work to improve CEST before the reforms come into effect.

The reform won’t be retrospective

HMRC will focus its efforts on ensuring compliance rather than focusing on historic cases

The Treasury also says that HMRC will not carry out ‘targeted campaigns’ into previous years when individuals start paying employment taxes under IR35 for the first time. In other words, they will not automatically trigger an enquiry into earlier years if a contract switches to IR35.

For more information on the changes and how you can limit the impact to your take-home pay, speak to a member of the Umbrella.co.uk today. Call: 0800 121 6513.