Do the IR35 changes only apply to engagements with medium and large businesses in the private sector?

The new IR35 rules ensure that individuals who provide personal services to medium and large clients in the private sector through their own company pay employment taxes and national insurance contributions (NICs) in a similar way to employees.

The new rules apply to payments made on or after 6 April 2020 where the services are also provided on or after 6 April 2020.

Who else needs to be aware of the changes coming on 6 April 2020?

1.Public sector changes

The IR35 rules introduced to the public sector in April 2017 are unchanged however the new updates have introduced additional obligations for public sector end-clients, being requirements to:

  • Issue formal status determination statements (“SDS”) to workers
  • Introduce SDS dispute procedures

These obligations are in-line with those introduced for the private sector set out in our blog post – ‘Is your business ready for the new IR35 rules?’

2. Small end-clients in the private sector

Finance Bill 2020 will place a legal obligation on clients to respond to a request for information about their size from an agency or a worker. This is intended to provide clarity for the contractual chain to know when the client organisation is small, and therefore whether they should expect to receive a status determination statement. Therefore, even where you have assessed your business as being small you have legal obligations under the new rules.

We recommend that, as best practice, you automatically communicate your size to agencies and workers once you have established this for the purposes of the IR35 rules.

The tests to consider in determining size can be found in our previous blog post – ‘How do you determine the size of the end client for the purposes of the new IR35 rules?’

3. What if you engage with a worker directly (i.e. there’s no intermediary)?

Where any business engages with a worker to provide services on a self-employed basis, such that there is no intermediary and payments are made to the worker outside of the payroll, there is an obligation on all engagers to assess whether the worker is, in reality, employed by them for tax purposes. The rules for direct engagements with self-employed workers are unchanged. Any underpaid tax and NIC will be assessed on the engager as it is the end-client’s responsibility to correctly operate the payroll.

The factors to consider in establishing employment status can be found in our blog post – ‘How do you determine employment/IR35 status?’

4. Businesses operating within the Construction Industry

If an end client operates in the Construction Industry, employment status and IR35 status should be considered before CIS.

If the employment status / IR35 status determination returns that the subcontractor is working as an employee would then payments to the subcontractor should be processed via the payroll accordingly and CIS will not apply.

If the employment status / IR35 status determination returns that the subcontractor is not working as an employee would then CIS should be applied to payments to the subcontractor as relevant.

The factors to consider in establishing employment status can be found in our blog post – ‘How do you determine employment/IR35 status?’

5. Overseas end-clients

The Government has confirmed that the legislation will be amended to exclude wholly overseas organisations with no UK presence from having to consider the off-payroll working rules. This means the existing rules for engagements outside the public sector will continue to apply to engagements where the client is wholly overseas, and the worker’s limited company will continue to determine the status of the worker.

HMRCs draft guidance states:

“A client is based wholly outside the UK if it does not have a UK connection in the form of being UK resident or having a permanent establishment.”

Please note that as this is draft guidance the definition may be subject to change however if there is a UK subsidiary or branch within the group we recommend that IR35 status determinations are carried out for workers operating within the UK. 

Contact us

At MHA Tait Walker, we have a comprehensive understanding of the new IR35 legislation, which comes into force on 6 April 2020.

If you have any queries on this or any other matters relating to the new IR35 legislation, please don’t hesitate to contact us on 0191 285 0321 or email advice@taitwalker.co.uk.

Other blogs in this series

Is your business ready for the new IR35 rules?

How do you determine the size of the end client for the purposes of the new IR35 rules?

How do you determine employment / IR35 status?​

How do you account for workers that fall within the new IR35 rules for tax purposes?