New IR35 rules come into force in April 2020 which affect businesses, recruitment companies and temporary workers or contractors in the private sector, so it is important to get up to speed.
Here is our explanation of what is changing, what is staying the same, and the background to IR35.
What is IR35?
IR35 – also known as the off-payroll working rules - refers to anti-avoidance tax legislation designed to tax disguised employment at a rate similar to employment.
Here, ‘disguised employees’ refers to contractors who receive payments from a client via an intermediary, for example, their own limited company or a recruitment company, as opposed to being a direct employee and paying taxes on a PAYE (pay as you earn) basis.
Initially introduced into the public sector, IR35 was then rolled out to the private sector and affects all contractors who do not meet HMRC’s definition of 'self-employment'.
What are the current IR35 rules?
At the moment, if you are a worker and your client is in the public sector, it is their responsibility to decide your employment status. You should be told of their decision.
However, if you are a worker and your client is in the private sector, it’s your intermediary’s responsibility to decide your own employment status for each contract. The private sector includes third sector organisations, such as some charities.
What are the new IR35 rules?
From 6th April 2020 contractors may no longer have to determine their IR35 status and instead, this task will be given to the end-user of their services – as happens at the moment with the public sector. However, this will depend on the size of the company they are working for.
This new ruling applies to all public sector authorities (as it does currently) and medium and large-sized private sector clients.
However, if a worker provides services to a small client in the private sector, it is still the worker’s intermediary who is responsible for deciding the worker’s employment status and if the rules apply.
What counts as a ‘small client’?
If you run a business employing contractors the new IR35 rule does not apply to you if the business meets at least two of the following three criteria:
- Turnover less than £10.2m
- Fewer than 50 employees
- Balance sheet of less than £5.1m
However, if your company is caught by these new IR35 rules then it is up to you to assess each contractor to decide if IR35 applies.
If it doesn’t, you need to tell the individual worker.
If it does, then the intermediary (such as a recruitment agency) must be informed and it is its responsibility to deduct tax and NICs.
To assess whether or not a worker is affected by IR35, you will need to use a new online tool which will be available from April, called CEST - Check Employment Status for Tax.
There will be an appeal process if a worker feels they have wrongly been categorised but more details of this process have yet to be released.
What makes 24-7 Staffing different?
We took the decision in April 2016 to move all our contractors and temporary staff to PAYE and we are proud we did so.
This was an expensive option for our business, as it has meant turning away hundreds of limited company contractors who want to register with us, particularly in our driving sector.
But we knew it was important to do the right thing for our contractors and for our clients. It means that IR35 does not affect our temps and contractors, as they have full employment rights and gives peace of mind to responsible employers we work with.
But we understand that IR35 is a complicated issue for companies and contractors alike. We hope to run an information event on this in the New Year, so watch this space for more details.
In the meantime, for more information, or if you are currently job-seeking and looking for a new challenge, please get in touch with the team.