IR35 Signposted changes for April 2020
One of the announcements in the recent Autumn Budget concerns the legislation commonly referred to as IR35.
Changes coming in April 2020 will impact those organisations who engage consultants or contractors via intermediaries. It is important that those organisations plan for the changes well in advance of April 2020.
What is IR35?
It is an abbreviation referring to a piece of tax legislation, or rather two pieces, one dealing with Income Tax and the other dealing with National Insurance. Its purpose is to make sure that consultants/contractors who are, in effect, working as employees within organisations, cannot avoid PAYE tax liabilities by providing their work via an intermediary.
IR35 has been with us since 2000.
What changes have been made and what changes are going to be made?
It is clear that HMRC considers there is significant abuse of IR35. The Chancellor’s Budget speech expressly referred to widespread non compliance. It has been up to each individual consultant/contractor and their intermediary companies to decide whether or not IR35 applies and whether they should be paying PAYE Tax and National Insurance. Unsurprisingly, the answer is generally no and those contractors/consultants have instead been able to source their income through more tax efficient ways, particularly declaring dividends through their own personal service companies.
In April 2017, the obligation to apply IR35 (therefore to decide whether or not PAYE should be applied) changed in the public sector. It is now for those public authorities, engaging contractors/consultants to ensure that there is proper compliance with IR35 and who risk additional tax and penalties if they get it wrong.
When these changes were introduced in April 2017 it was always clear that the private sector would follow. The message from HMRC was that the public sector (including HMRC itself!) should get its own house in order first.
Unsurprisingly therefore this week’s budget has included an announcement that these changes will be rolled out to the private sector. The Chancellor however noted that the new regime would only be rolled out to private sector organisations described in his speech as “medium and large”.
We await definitions of which organisations will fall within these categories and which will fall outside.
What does this mean for me?
For those engaged in the public sector, checks and systems should already be in place. HMRC has audited a number of public authorities to check that they are compliant following April 2017.
Those private sector organisations that use off payroll consultants/contractors should start to take steps soon to ensure that their organisation and processes are ready for compliance from April 2020.
Look out for details of our IR35 Webinar on 11 December 2018.
Mark Leach (firstname.lastname@example.org) is a Partner in the Employment, Pensions and Immigration Team at Weightmans LLP and is based in Manchester. If you have any concerns or questions please do not hesitate to contact Mark or speak to your usual Weightmans advisor.