How can a business prepare for IR35?

The government has launched a review into the IR35 off-payroll working rules but has been criticised by campaigners for the self-employed for refusing to postpone the changes due on 6th April 2020.

IMPORTANT NOTE - due to the COVID-19 outbreak and its effects on the UK economy, the government has, as of 17th March 2020, decided to postpone the changes to IR35 until April 2021. Nevertheless, businesses should still use this opportunity to draft and implement plans to react to the changes when they eventually take place.

According to HMRC, the changes are likely to affect 170,000 people working through their own company, and up to 60,000 organisations that use workers employed by a personal service company.

rradar Tax Advisor Caroline Lamyman examines what the review will mean for those affected by the changes.

On 7th January 2020, the government announced that it was launching a review of changes to off-payroll working rules. The review will address concerns from businesses and affected individuals about how the reforms will be implemented.

What is IR35?

Off-payroll working rules, known as IR35, were introduced in 2000 to ensure that someone working like an employee, but through a company, pays their tax in a similar way to other employees.

Those who do not fall under these rules pay significantly less income tax and NICs than an equivalent employee.

Since 2017, public sector employers have been responsible for determining the tax status of the contractors whose services they were using. The reforms will require medium and large organisations in all other sectors to do likewise.

The review

Recent cases of non-compliance have prompted a government review of the system and proposed reforms announced in the 2018 Budget. The review covers the way in which the reforms will be implemented.

Who is not affected?

The off-payroll working rules do not affect the self-employed, as only those working like employees are in scope. As part of the review, the Government will explore whether there are any further steps it could take to support businesses in correctly determining employment status.

How can a business prepare for IR35?

Prepare early for the introduction of this legislation as there may be a significant amount of work to do before 6th April 2020.

A company must understand the status determination process and review each contract and contractor on an individual basis as this will help employers avoid the pitfalls of the new rules. They should prepare documented processes to guide each IR35 engagement and establish a point of contact within the company so they can optimise these processes and responses in the face of a potential HMRC investigation.

Good communication is essential with contracted workers and agencies if they are involved, to ensure the continued success of the business, the ongoing trust of contractors and the retention of top service providers.

rradarstation

If, after reading this article, you feel you want to discuss the way your business handles the tax status of its contractors, why not talk to our rradarstation advisors? rradarstation is a resource available through the AXA MLP where policyholders can access rradar’s legal advisory team over the phone or by email and web gateway that provides over 2,000 articles, step-by-step guidance sheets, forms, sample letters and templates to download relating to running your business/organisation.