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IR35: Private Companies and Contractors- what you need to know

IR35

(Updated 18/3/20)

IR35 postponed until April 2021


In the midst of all of the uncertainty relating to the Coronavirus pandemic there is at least some reasonably good news that will ease the burden on business, at least for the next year.  The UK government has confirmed that the proposed changes to IR35, which in many cases would have transferred the liability for paying tax from contractors to the client, will be postponed until April 2021.

Speaking in Parliament on Tuesday evening, Chief Secretary to the Treasury Steve Barclay said: “The government is postponing the reforms to the off-payroll working rules, IR35, from 6 April 2020 to 6 April 2021.” He said the suspension is in “response to the ongoing spread of COVID-19 to help businesses and individuals,” but insisted it will still go ahead as planned the following year.

“This is a deferral, not a cancellation, and the government remains committed to reintroducing this policy to ensure people working like employees but through their own limited company, pay broadly the same tax as those employed directly,” he added.

The changes would have only applied to those private sector organisations defined as large but were also causing substantial concern with contractors who, in many cases, would be treated as an employee for tax purposes but without gaining any of the benefits of employment.  The current crisis has put these changes on the back burner and in these uncertain times there are likely to be other temporary measures introduced to ease the burden on businesses.  We will endeavour to keep you updated on any changes as and when they happen.

 


From 6th April 2020, if you are a private company engaging contractors and you satisfy two or more of the following criteria:

  • Annual turnover more than £10.2 million
  • Balance sheet total more than £5.1 million
  • Number of employees more than 50

then it will be YOUR responsibility to determine whether a contractor should be defined as an ‘employee’ for tax purposes.

You should be making the determination before the start of the engagement and gather evidence to demonstrate that you have taken reasonable care in line with HMRC’s guidance.

HMRC recommends utilising their own online CEST tool to help determine a contractor’s status.

Having made your determination, you will then need to pass a status determination statement (“SDS”) to:

  • the individual contractor; and
  • where the contractor is supplied through a more complex supply chain (e.g through an agency), the entity immediately below the client in that supply chain.

Your determination statement must include whether you consider the contractor should be treated as an employee for income tax purposes, and the reasons for that conclusion.

Depending on the outcome of the determination, you could be responsible for all income tax and NIC payments.

There are various factors which could affect your determination.  The process involves not only assessing contractual documentation but also assessing the working arrangement as a whole.

In light of the recent case law, we recommend that any private companies affected should commence an audit of their existing arrangements with contractors without delay.

We can assist you with your IR35 queries. Please contact Karl Thomas at Loosemores Solicitors to discuss your options regarding the upcoming changes.

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