IR35 Private Sector Reform: What’s the Latest?
IR35 has rocked the public sector since it first came into tax law back in 2017. Now the private sector has the same challenges to face. IR35 will hit the private sector in April 2020, but what’s the latest?
What IR35 in the private sector will mean for businesses?
IR35 hitting the private sector means that medium to large-sized businesses which hire personal service company contractors will have to determine the IR35 status of their contractors from next year onwards.
If workers are found to fall inside IR35, they will be required to have PAYE and National Insurance deducted at the source of their income. That means the “fee-payer” (the business who hires the contractor) will be responsible for making the necessary deductions on behalf of the worker.
It’s important that agencies and hiring organisations fully understand their responsibilities regarding contractors and IR35. Similarly, it’s important for contractors to be aware of the changes that could be coming to their pay in April 2020.
When is it the contractor’s responsibility?
There’s a lot of confusion about who is responsible for determining IR35 status. Medium to large sized businesses will be responsible themselves, however, the rules are slightly different for smaller businesses. Small private businesses are currently excluded from the IR35 rules.
A business is classed as a small company if it satisfies two or more of the following requirements:
- You have an aggregate turnover of less than £10.2 million
- You have an aggregate balance sheet total of less than £6.1 million
- You have fewer than 50 employees
However, all this exemption means is that small businesses are not required to assess and determine which contractors come under IR35 themselves.
This doesn’t mean that contractors won’t have to worry about IR35. Instead, it will be the contractors themselves who will be responsible for checking whether they come under IR35.
New and improved CEST tool coming soon
Currently, there is an online tool that people can use to check their IR35 status of themselves or the contractors they hire. However, the tool isn’t 100% reliable yet and falls short in more specific or complex scenarios.
The Government has promised an ‘enhanced’ version of the check employment status for tax tool (CEST) will be launched before the end of 2019. HMRC say they have worked with more than 300 stakeholders to make the tool “clearer, reduce user error and consider more detailed information”.
This is something that’s been welcomed by businesses who are looking for more clarity and guidance, having highlighted the problems and controversy the tool has raised so far.
Need help with IR35?
Whatever changes the tool brings or updates to the legislation itself, it’s important to get solid advice from a professional.
Enlisting the help of an accountant at the very least is a good step in the right direction to ensuring your business is doing everything above board. An accountant will be well versed in how this tax law will affect your specific business or contractor agreements.
Don’t leave it up to chance, as the penalties to pay if you fail to comply with IR35 rules are large. Penalties currently stand as:
- 30% of your unpaid taxes will be chargeable to HMRC if you were negligent about IR35 rules
- 70% of unpaid taxes are due if you know about IR35 but ignored it
- 100% of the tax owed is due if you actively try and hide your IR35 status.
It’s simply not worth the risk so make sure you have help on hand to guide you through IR35.