Contractors and agency workers could soon be forced to pay more in tax and National Insurance under changes put forward by the Government.
What is IR35?
Inland Revenue 35 was originally introduced in 2000. Its aim was to prevent individuals from setting up as a company and not paying tax and National Insurance contributions. Before this ruling, a worker could leave their job as an employee and start the same role the following day as a limited company.
Previously, the onus was on contractors to evaluate their IR35 status for each contract, and deduct tax in line with this. Now, the responsibility is now on companies employing the contractors. Deductions in these cases now need to be made at source, or the employers risk a fine.
The responsibility of determining IR35 status and paying the relevant taxes has always been that of the contractor themselves until April 2017, when those contracted to the public sector were removed of their responsibility – which was passed to the hiring public sector body.
From April 2020, these same rules will be extended to the private sector. Medium and large businesses will need to determine the IR35 status of their contracted workforce.
How to Prepare for IR35 Reform
Contractors and clients should work closely together – and familiarise themselves with the way in which the rules already work in the public sector, particularly the HMRC Check Employment Status for Tax (CEST) tool – to come up with a more considered course of action.
As a medium or large sized end-client business who is engaging the contractors, it is crucial to be aware of the changes to communicate effectively and consider:
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