Guide to the IR35 reform
March 2020 Update
On the 17th March 2020, the Government announced that the changes to the off-payroll working rules would be delayed until April 2021. This is a deferral and not a cancellation in light of the Coronavirus outbreak to help businesses and individuals in the current climate. The Government is committed to this policy, and it will come into force from April 2021.
This means that contractors will retain the right to determine their own IR35 status when working in the private sector until 6th April 2021.
As a result, medium and large private sector end-clients will not become responsible for administering the IR35 rules for 12 more months. The IR35 liability, which was due to transfer from the contractor to the fee-paying party in the supply chain, will remain with the contractor until April 2021.
We recommend that you contact your client and agency regarding your status and assignment and ensure that you have a clear communication channel.
Introduction to IR35
HM Revenue and Customs (HMRC) introduced the ‘intermediaries legislation’, which became known as IR35, in the 2000 budget. The legislation was introduced to combat ‘disguised employees’. This refers to an individual who would be treated as an employee because they provide services via their own personal service company (PSC) and pay less tax in the process.
In 2017 the Government shifted the responsibility of determining contractors’ status to organisations in the public sector.
In 2021 the same reform will be rolled out in the private sector. From this date, medium and large businesses (and similar unincorporated bodies) hiring contractors will be liable to determine their off-payroll worker’s status.
IR35 for Recruiters
The new private-sector reform places a greater emphasis on the recruiter in IR35 status determination. The IR35 reform coming this April will mean that soon it will be the client’s responsibility to decide IR35 status and recruiters can help calculate the impact of the change for their clients.
It is more crucial now than ever for the recruiter to understand the IR35 legislation and Smartwork is here to help in every step of the way. We have been advising agencies for nearly two decades and continuously updating our knowledge to support our clients’ needs.
Contractors Inside IR35 – Working with SmartWork
If a contract is deemed to be inside IR35 working through an umbrella company such as SmartWork could be the perfect solution.
The primary function of an umbrella company is to organise payment for fixed-term work undertaken by independent contractors. When signing up with an umbrella company such as SmartWork, contractors become one of its employees, and they act as an intermediary between them and their agency, or directly the end client if no agency is involved.
SmartWork provides a full package with a host of additional benefits.
- We process statutory sick pay, maternity/paternity and holiday pay and can assist you with mortgages advice and references.
- We also cover you for all of your work-based insurances, including Professional Indemnity and Employers/Public Liability.
- We pride ourselves on our personalised service with a dedicated account manager allocated to each contractor. Contractors have access to our SmartWork portal, allowing them to easily upload timesheets, submit expenses and e-sign documents.
- In terms of compliance, SmartWork is a fully accredited FCSA member, undergoing a yearly audit demonstrating we fully comply with the trade body’s strict code of conduct.
IR35 for Contractors operating a PSC
If you currently trade through your own limited company (Personal Service Company or PSC), you may be concerned about the changes arriving in 2021.
As we mentioned above, from April 2021 medium and large-sized businesses will be responsible for determining the contractor’s IR35 status; if you are in engagement with small business, then the assessment process stays with you – the contractor.
What you can do to prepare:
- Intentions – Open a discussion with your client to see their plans, since, after the reform, it will be their responsibility to determine your status.
- Your status – Check your status using HMRC’s CEST tool, which may not be perfect, but enough to give you an indication. We recommend having a professional review done for complete peace of mind. Qdos Contractor offers a discount to our clients, so makes sure you ket us know before shopping.
- Speak to your agency/client – Talk to your agency or client and ask/encourage them about getting on board with the process. This can help you down the road and let you continue with your assignment with a compliant organisation without interruption.
It is worth noting that nothing will change until the legislation is actually in place in April 2021. Until then, contractors are still responsible for determining their own status. If your end client is a small business, nothing will change even after the reform.
Umbrella & Limited Dual service
If your current engagement falls inside IR35, but you wish to keep your company for contracts outside IR35, we offer an option for you to do just that. With a fixed monthly fee of £95+VAT, we will oversee your umbrella income and look after your limited company, so that it is ready for you to pick up where you left off.
It is important to remember that despite the legislation changes, working outside IR35 and via a limited company is still the most tax-efficient way of trading.