Your IR35 Handbook

Your IR35 Handbook

Due to change on 6th April 2020, make sure you're up to date with how IR35 affects you!

Why You Should Be Thinking About IR35

The most significant buzzword in the contracting world right now: IR35. The what, the why, and everything you need to know.

After conducting a survey regarding IR35, we've come to realise that a lot of individuals are concerned about the changes that are being made to IR35 and not certain of how it's going to impact them. But don't panic! Yes the date is getting closer, but the changes aren't something you need to fear or lose sleep over. We've done some research so that you don't have to, lets go over the basic facts first.

Why you should be thinking about IR35

By this point you'll have heard the term IR35 thrown around just as much as Brexit has been during the recent election, but no matter where you stand on Brexit, IR35 deserves your much-needed attention. IR35 is a shortened term for the 'off-payroll working rules'.

If you're not quite sure what IR35 means, then here are the basic facts you need to know:

•     IR35 changes come into play from the 6th April 2020

•     It will require contractors in the private sector to contribute the same tax and National Insurance as an equivalent employee

•     These changes were already made to the public sector in 2017

Why is IR35 changing?

Currently if you work via an intermediary, such as a limited company or recruitment business, the intermediary are able to self-assess ifIR35 applies to you and whether you're required to contribute more tax andNational Insurance. From April 6th 2020, in medium and large businesses, this responsibility will belong to the client rather than the intermediary.

These changes are being made to IR35 to make it more difficult for the less scrupulous contractors to evade, in the eyes of the government, contributing the same tax and National Insurance as an equivalent permanent employee of the business. This is despite contractors not receiving the same benefits as a permanent employee.

However, if you are working for a small business in the private sector, then the changes to IR35 will not apply to you. To be considered a small business you must have 2 of the following[1]:

•     A turnover less than £25m

•     Less than 50 employees

•     Gross assets less than £12.5m

If this is the case, then your intermediary company will continue to assess whether you are inside or outside of IR35.

What you need to know as an employer

If you operate a medium-large business in the UK, from 6th April 2020 it is your responsibility to determine if a worker falls inside or outside IR35. If HMRC disagrees with your decision, then HMRC have the ability to investigate, request back payment of tax, and issue fines from the fee-payer, i.e. you.

Therefore, it's incredibly important that you make the right determination in order to avoid paying any late fees, as well as the amount of time that you will lose in trying to redeem the situation.

How to you make the right determination then? If the contractor has the similar working conditions and responsibilities that a permanent employee would have, then that worker will be considered inside IR35and you will be required to contribute the same tax an National Insurance as a permanent employee.

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Going Forward

After doing our own research into IR35, we believe that the changes being made aren't as scary as we first thought, and that actually it's going to have a positive impact.

If you're under a statement of work then IR35 isn't even something you need to think twice about at this moment of time as you are considered outside of IR35. To be 'outside IR35' you need to be operating as a genuine business, this means that you're able to pay yourself a salary and draw dividends. This is because you will remain responsible for sorting your own taxes ( you still can hire an accountant to do it for you to make life a little easier!).

Helpful Links:

https://www.qdoscontractor.com/ir35/what-is-inside-and-outside-ir35

https://www.gov.uk/topic/business-tax/ir35

https://www.gov.uk/guidance/april-2020-changes-to-off-payroll-working-for-clients

https://www.contractorcalculator.co.uk/ir35.aspx

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[1] https://www.gov.uk/government/collections/mid-sized-businesses