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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.
The Government has this week launched a review of the upcoming change to off-payroll (IR35) working rules. But the review has already been branded ‘limited’ and ‘meaningless’ by industry experts.
The review will gather evidence from contractors and large and medium-sized businesses and will determine if any further steps can be taken to ensure the ‘smooth implementation’ of the reforms.
Legislators will need to act quickly, however, because the reforms are still due to take effect in April 2020.
With around six months to go until public sector IR35 reforms take effect in the private sector, HMRC has clarified how it will enforce the regulations.
The tax authority has announced that the new rules will only be applied retrospectively in cases where it suspects fraud or criminal activity.
The Treasury has published the Finance Bill 2019-20, which confirms a number of important details about the upcoming IR35 reforms in the private sector.
Ignoring some of the recent calls for the reforms to be delayed, the bill confirms that off-payroll rules will be extended to the private sector from 6 April 2020.
In line with the changes in the public sector, private sector clients will be responsible for assessing a contractor’s IR35 status. Previously, this responsibility lay with the contractor.
Ahead of reforms to private sector IR35 rules, new research shows that several public sector organisations are, in the majority of cases, judging contractors to be inside IR35.
Since 2017, public bodies have been responsible for deciding whether a contractor is truly self-employed or whether they should be taxed as if they were an employee of the firm.
The rules apply to limited company contractors who, before the rule change, were responsible for judging their own IR35 status.
From April 2020, the same reforms will be introduced in the private sector, so that organisations with 50 or more employees will be responsible for judging a contractor’s IR35 status.
Leading recruitment companies have urged the government to delay and ultimately rethink IR35 reforms, warning that the tax changes will damage the industry and wider economy.
Fourteen companies including Adecco, Harvey Nash, Hays, Reed and ManpowerGroup wrote to Chancellor Sajid Javid last week pleading with him to reconsider the changes that affect off-payroll contractors working through limited companies.
Under the new rules, contractors working in the private sector will no longer be responsible for judging their employment status.
The government has scrapped plans to hold a budget in November after MPs voted for a general election in December.
The delay creates more uncertainty about whether planned IR35 reforms will take effect in April 2020.
The Treasury has confirmed that the December 12 election will mean that chancellor Sajid Javid will not deliver a budget that was scheduled for November 6.
UK banks Barclays and Lloyds appear to have followed the example set by HSBC and others by blocking the engagement of limited company contractors when private sector IR35 reforms take effect.
A letter sent by Barclays to contractors suggests that the bank will stop using personal service company (PSC) contractors and tax all contractors in the same way as salaried employees.
New research indicates that one-in-five UK sole traders are preparing for the upcoming changes to off-payroll working rules in the private sector, despite the fact that the legislation will not affect them.
Completed by the Freelancer & Contractor Services Association (FCSA) professional body and cloud accounting software provider FreeAgent, the research found that 18% of sole traders were making preparations for the new rules when they would not affect their business type.
Large and medium sized private sector organisations have just over a year left to prepare for important changes to IR35 legislation.
When similar changes were introduced in the public sector in April 2017, many organisations were woefully underprepared. In the most serious cases, public sector organisations made costly errors and saw major projects delayed.
Getting ready for April 2020 requires effective leadership and co-operation across departments and business areas.
In this blog post, we will provide a brief introduction to the changes before detailing what different teams can do to prepare.
