HM Revenue & Customs is in the process of issuing 43,000 letters to private sector businesses, warning them to consider the employment status of their contractors ahead of IR35 reforms in April.

These reforms mean that private sector engagers will be responsible for judging their contractors’ employment status for tax, rather than the individuals themselves.

This rule change, which mirrors reforms introduced in the public sector in 2017, is likely to result in more contractors being judged ‘inside IR35’. These contractors will pay more in tax as a result.

An example letter seen by New Model Adviser from HMRC says:

“Whether a worker is employed or self-employed is not a matter of choice. Instead, we need to take a rounded view of how the work is provided by a worker.”

Employers can use various tools to check a contractor’s employment status, including HMRC’s Check Employment Status for Tax (CEST) tool. But the validity of the rulings produced by these tools has been called into question.

If an employer believes that a contractor should be an employee, then they will be required to calculate and deduct PAYE income tax and National Insurance Contributions.

An HMRC spokesperson said: “HMRC has put various measures in place to help businesses and other organisations get the status of the contractors they engage right.

“We have dedicated teams providing education and support to all businesses, public bodies and charities affected.

“This includes one-to-one support for 2,000 of the UK’s biggest employers and direct communications to around 40,000 medium-sized businesses.”

Miles Grady, Director of Umbrella.co.uk, said: “Companies and contractors now have very little time to put new IR35 policies in place. We have already seen major banks like HSBC and Lloyd’s implementing blanket contractor bans that will make it difficult for them to access the very best talent.

“With time running out it is vital that contractors and recruiters seek professional advice to navigate the changes.”

For more information about IR35 and how it might affect you, speak to a member of the team today. Call: 0800 121 6513.