The Future of IR35 in the Private Sector | What Contractors Need to Know
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The rules for the taxation of those individuals providing their services through a personal service company (“PSC”) Limited Company Contractor introduced under the Finance Act 2000 (more commonly known as IR35) will be changing from April 2020.
Changes to how IR35 is applied in respect to the provision of off-payroll working in the Public Sector (any organisation covered under the Freedom of Information Act 2000) were made in 2017. The intention is to make ‘similar’ changes for the Private Sector.
How IR35 works
IR35 is intended to catch any individual who but for the supply of their services through a PSC (treated, for tax purposes, as an ‘intermediary’), would otherwise be regarded as an employee of the end-client to whom the services are being provided.
Payments received by a PSC, if caught by the IR35 rules (often referred to as operating “inside” IR35) would be subject to tax and NI as if the individual were a PAYE employee of the end client. The resulting tax liability would fall upon the PSC.
Whether an individual is operating “inside” or “outside” of IR35 has been previously determined in the first instance by the PSC itself. If HMRC disagree with the PSC’s initial determination and cannot reach agreement with the PSC, then the tax tribunals/courts would decide the position.
Changes to IR35
The main changes to the way in which IR35 is implemented will include: -
a simplification of the determination of status of the individual through use of a tool developed by HMRC known as CEST (short for Check Employment Status for Tax). This is commonly used in the Public Sector and has a number of limitations
the responsibility of determining status will lie with the end-client, rather than the PSC (excluding potentially any end-client that is a ‘small business’, in which circumstances the PSC would retain responsibility).
Whilst there are concerns over the simplification of how to decide when IR35 applies, the considerations for the end-client should not differ fundamentally to those which would be applied under the current legislation.
What are Morson doing?
Morson are aware of the proposed changes and indeed have experienced the challenges presented by this legislation when rolled out to the Public Sector April 2017.
The original consultation closed August 10th2018 and both Morson and our clients and associated Trade Bodies (APSCo & The REC) responded to the consultation document, we now await the detailed consultation from Government to be published. Once we have such detail we will be able to work with both clients and contractors to establish processes and procedures for establishing the tax status associated with the various roles undertaken by our contractors prior to implementation 6thApril 2020. We will endeavour to keep all parties updated to ensure a fully compliant supply chain.
For more information please contact the Morson IR35 Team at IR35@morson.com
