One of HMRC’s most criticised and least understood regulations in contract work is changing once again this April.
The intermediaries regulation better known as IR35, determines how a worker is engaged with a business for tax purposes – whether they sit on payroll as an employee, or outside it as a contractor.
What does it do?
It’s there to ensure that contractors delivering their services through a limited company are not disguising their relationship with your client as a contractor, when they’re in fact employed.
As an employee, contractors would have PAYE and National Insurance Contributions deducted at source, and would forego the ability to offset certain expenses against their limited company.
From April 6th the responsibility for determining whether a contractor falls within IR35 in the public sector will shift from the contractor to the client employing their services.
Although the decision will now sit with the client, the responsibility to deduct NIC and PAYE will be left with agencies, as will the liability it appears. It’s therefore imperative that agencies are confident over the client’s decision and raise any knowledge they have contrary to it.
This will only affect those placing contractors in the public sector
With the ink still wet on HMRC’s changes and the details unclear to almost everyone, the approach to April 6th will hopefully shed further clarity over the questions we need answered.
Are your contractors IR35 compliant?
For the best part of two decades, HMRC has struggled in giving a clear way of determining IR35, with several shades of grey clouding the way.
Contractor UK and IPSE will provide valuable insight into IR35 developments as they unfold, with APSCo and the ARC likely to deliver their stance on the agency’s position.
Launched earlier this month, HMRC’s online Employment Status Service is supposed to offer a legally binding decision, providing the details you enter are correct.
The fact it’s littered with inconsistencies to case law and provides an “Unknown” outcome in 27% of the cases that historically ended up in court, seems to suggest that it’s far from definitive.
Traditional indicators like whether you can supply a substitute to conduct your work, or the level of control you hold over how the work is conducted, remain key.
It gets particularly nuanced which is why we recommend seeking specialist advice from professionals like Qdos or call us to discuss your concerns.
What does it mean for the contract market?
With more uncertainty than usual surrounding IR35, the consequences from the changes remain largely speculative. Suggestions have been aired that public bodies will simply push all contractors into IR35 to appease the Tax Man.
As this could cost contractors up to 30% of their take-home-pay, it’s unlikely to be accepted lying down and could drive an exodus to the private sector, or a knee-jerk reaction for higher rates to retain talent.
Others have suggested that the changes will do little to upset the waters as most contractors clearly fall outside the parameters outlined in the ESS and that this is all needless clamour.
Outcomes from the Budget
Other than confirming that it will indeed go ahead in April, there was very little to address the confusion surrounding the changes to IR35.
That said, the Government is expected to consult over Matthew Taylor’s review of the UK’s employment law and revisit in the Summer.