Changes for working off-payroll are on the horizon from 6th April 2020, but what does this actually mean for you or your business and whom will this affect?

Let’s start by explaining what the IR35 actually is.

IR35 is a piece of anti-avoidance tax legislation which allows HMRC to deduct a fair amount of tax from workers who provide regular service to companies through their own intermediaries, but they are not employed by them.

The aim of IR35 is to ensure that those who do so, pay similar tax and national insurance contributions to those of an employee.

In a nutshell, if a worker is acting in a similar way to an employee, they should be paying broadly the same tax and NIC.

HOW CAN I DETERMINE IF AS A CONTRACTOR I FALL UNDER IR35 FOR A PARTICULAR CONTRACT?

Are you able to send a substitute or assign more than one person to complete the job, or does it have to be completed by you personally?
Are you able to decide on how, where and when is the work completed?
Can you refuse to accept any more work and does the company have no obligation to provide you with extra work?
Are there any potential financial risks that come with the job i.e. lack of payment for not completing the assigned task or not performing to agreed standard?

If the answer to all the above is yes, then it’s quite likely that IR35 will not apply to you. The more “say” you have over the work being carried out, the less likely it will be for that particular contract to fall under IR35.

WHO DECIDES?

Currently, for all contracts in the public sector it’s the engager – the public sector company, which has to determine if IR35 applies to your contract with them. If it does, the engager will place the contractor onto their payroll and will deduct income tax and National Insurance before paying.

From 6th April 2020, the same rules will apply to medium and large-sized private sector companies. This includes some charities and third sector organisations. Also from 6 April 2020, public sector companies and medium to large-sized companies must provide the worker and the agency, if they are using one, their determination of employment status. They will have to do this whether that determination shows that the off-payroll working rules will apply or not. You can dispute this if you disagree.

Rules for contracts with small companies in the private sector are staying the same, it’s up to you as a contractor to determine whether or not the off-payroll working rules apply to you or not on any particular contract. If any of your contracts fall under IR35, you are required to make an extra payment to compensate for the additional tax and NI that HMRC would have received on an equivalent employee’s wages.

If you are ever unsure, our team of experienced accountants can help you determine this for each of the contracts you have or are in the process of securing. Ivybridge Accountants are here to help you through all the various stages of your company’s growth and to ensure you comply with the current legislation as well as being ready for any future changes.