Is your business ready for the new IR35 rules?
Since 2000, the Government has been trying to restrict the growing use of one-man band limited companies who provide personal services to clients, where the individual is working in the manner you would expect of a traditional employee whilst enjoying the tax saving benefits that a corporate structure receives.
Over the years there have been consultations and numerous overhauls to the IR35 regime. However, new rules for some private companies which come into force from 6 April 2020 (also known as the Off-Payroll Working Rules) will be the biggest yet. They are already in force and have been causing havoc for the Public Sector since the introduction in April 2017.
IR35 has never been the most clearly defined piece of legislation. Businesses really need to invest and understand the new rules. They will have to determine how they are going to treat and pay their workers. This is potentially also going to add to the payroll team’s already extensive list of legislation checks.
- From April 2020, it will be the responsibility of the organisation that is the end-user of the worker’s service (the end-client) to determine a worker’s status where the end client is a medium or large sized business in the private sector.
- Medium and large sized end-clients will be affected by the new rules. They will need to review all of their current business practices as soon as possible (prior to 6 April 2020) including the on-boarding process. The HR, Finance and Payroll teams need to understand the new rules, their responsibilities and roles and understand the issues non-compliance can bring.
- Businesses must review all of their current workers that are not paid via the payroll and complete HMRC’s CEST tool to determine their status. This also includes their current subcontractors that fall within CIS.
- Once status is confirmed, the end client must provide the worker with a ‘Status Determination Statement’, (SDS). It must set out the determination the end client has arrived at and the reasons supporting this determination. The SDS has to be provided before any payment is made or PAYE and NIC is assumed.
- If they assess a worker to fall within IR35 for tax purposes, the fee payer will be required to process payments via payroll and pay the necessary tax, National Insurance contributions (including employers) and potentially the Apprenticeship Levy.
- The workers will be taxed at 20% using tax code BR.
- The tax and NIC liability will lie with the fee-payer. However, this can potentially be passed up the chain where there is non-compliance by the fee payer. Therefore, it is important that the correct checks are in place. Records need to be kept in relation to the SDS and when this has been passed down the chain.
- Businesses or agencies will need to decide how they will operate the payroll. Will they:
- Add workers to the normal payroll?
- Run separate payroll and combine monthly employer payment submissions?
- Process via a new PAYE scheme?
- Workers that fall within IR35 will not have a direct employment contract. This means that even though they will be required to be added to payroll, they will not be entitled to statutory payments or employment rights.
- Workers will have the right to dispute the result of the determination through the end-client’s status disagreement process.
- The end-client will have 45 days from the date of receiving the dispute to respond, so it is imperative to have a procedure in place.
As with all new changes in legislation, early preparation is key and we advise that you don’t wait until 6 April 2020!
Please refer to our ‘IR35 – Changes to off-payroll working rules from April 2020’ brochure to find out more information and see what you need to do to prepare for 6 April 2020.
For further information and advice, please contact Claire Brown on 0191 285 0321 or email firstname.lastname@example.org.