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What is the IR35 reform? How will it impact UK contractors and businesses?

10/2/2020

 
JR Accounting Darford: IR35 reform
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:
  • Determining the Status of Off-Payroll Workers – When reform takes place, the end client will be responsible for determining the IR35 status of the workers whom they are engaging. It is down to the end client to carry out this process and take the necessary steps.
  • Liaise with your PSC Workforce – It is vital to ensure that those who are operating through their own Personal Service Companies (PSCs) are aware of the changes that might affect them going forward in their role. Inform Agencies – If staff is hired via an agency you will need to ensure that any changes are communicated with them too. The agency will then be required to deduct the correct PAYE and NICs as though the worker were an employee.
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If you need any help understanding the changes in the legislation and how this could affect you or your company, get in touch with the team at JR Accounting in Dartford, Kent. Give us a call on 01322 219 121.

We offer the following accountancy services in Crayford and around Dartford, Kent
Bookkeeping | Management Accounts | VAT Returns | Corporation Tax | Payroll / PAYE Services | Construction Industry Scheme | Company Formation Process | Self-Assessment Tax Returns 
Visit our 
accounting services page

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