what is IR35?
IR35 is the common name given to the intermediaries legislation. That is the legislation governing the tax status of individuals who provide their services through an intermediary such as a limited company (commonly known as a personal services company or a PSC).
IR35 changes explained — from contractor to client.
For the public sector, IR35 is almost old news, with changes implemented back in 2017. Turn to IR35 in the private sector and there’s a wealth of unanswered questions and confusion. Originally set to come into effect from April 2020, the implementation of IR35 legislation was postponed until 6 April 2021, due to the coronavirus pandemic.
Come spring 2021, contractors and clients will need to be ready for the new IR35 rules and, for organisations, now is the time for preparation to begin. Randstad Sourceright is here to help and share our experience of carefully navigating the public sector through the IR35 changes in 2017 and preparing private sector clients for initial proposed changes before April 2021.
IR35: what has changed?
IR35 is a set of tax reforms first unveiled in 1999 by the Inland Revenue. The reforms will force medium and large businesses in the U.K. to determine if the IR35 rules apply to their contractors and freelancers. Previously this was determined by the contractors themselves.
New IR35 legislation to be introduced in April 2021 is designed to enable more effective enforcement of existing rules, shifting the compliance burden to clients. For example the change will allow HMRC to pursue one company in respect of 200 contractors, rather than carrying out 200 individual contractor investigations.
IR35 targets individuals that provide their services via an intermediary, most commonly a limited company.
Under the current IR35 rules, these individuals assess each contract and determine whether IR35 applies. When it does, income received from that contract should be treated as employment income. This means it’s subject to tax deductions and national insurance contributions.
On the 17th March, Chief Treasury Secretary Steve Barclay announced the Government's decision to delay the implementation of the IR35 legislation by 12 months, with changes now coming into effect from April 2021.
Originally from April 2020, the responsibility for making this IR35 determination will fall to the end-user of the services (typically employers that engage contractors). The organisation paying for the services will be responsible for making the relevant deductions.
IR35 is coming. Are you ready?
The HMRC has the authority to investigate the tax compliance of organisations, and this will allow them to explore the employment status of any off-payroll workers providing their services to private sector clients.
Where it is found that an individual has been incorrectly categorised as being outside of IR35, the HMRC will issue a determination requiring the unpaid PAYE tax and National Insurance Contribution liabilities — including any late payment fines and interest — to be paid.
In addition to these fines, HMRC have the discretion to issue a penalty ranging from 0-100% of the initial outstanding liability. If an incorrect determination has been made in the absence of reasonable care, it is likely that a severe penalty would be awarded alongside the unpaid taxes.
It is clear that non-compliance with IR35 can bring with it potentially crippling financial implications. It’s critical that you get up-to-speed to avoid any unwanted penalties.
what should you be thinking about right now?
There are three steps to effective preparation. We strongly encourage you, as an employer, to target October 2020 for completion of the due diligence phase. For contractors on a six-month contract, offers after 1 October 2020 likely to last beyond the start date of the revised rules will be in scope.
achieving IR35 compliance
Your business has likely already seen so much disruption in 2020, and IR35 may be an unwanted distraction that you are yet to engage with. Our team of experts can assist you by providing a tailored solution to safely and efficiently manage you through the changes to avoid unnecessary disruption.
Why Randstad Sourceright?
#1 Our partnership means you will hear the latest HMRC IR35 guidance and important changes from us first.
#2 You benefit from our wealth of experience implementing IR35 solutions within the public sector.
#3 We have a proven track record; you’ll be working with the world’s leading HR services provider.
learn more about our IR35 program management services.
how can we help?
- by ensuring best practices and IR35 compliance for both our clients, and as a market leading managed service provider (MSP)
- providing trusted subject matter expertise and guidance
- offering tailored solutions fit for any business
- simplifying complex processes, unravelling jargon and ensuring clear understanding
- let your hiring managers focus on their day jobs, let us take the strain of IR35
- providing SOW services procurement services to broaden talent access
the time is right for SOW services procurement.
With Ltd. Company contractors facing greater financial obligations under IR35, you can expect that more will seek alternate working arrangements before the legislation comes into effect. How can you access the talent you need and get work done in a compliant way?
Statement of work (SOW) services align closely with the key tenets of IR35 : supervision, direction, control, right to substitution and mutuality of obligation. But it takes the right technology, expertise and processes to manage SOW services procurement compliantly and efficiently.about SOW management
get focused on IR35 compliance before it’s too late.