Everything you need to know about the off-payroll working rules (IR35)
Lo and behold, the government has confirmed plans to make changes to off-payroll working (IR35) rules effective from 6th April 2020. If you’re a recruiter, self-employed, a contractor, or if you work directly with any contractors, these changes will undoubtedly affect you. It really is a rollercoaster trying to keep up with HMRC’s constantly evolving rules and regulations, don’t you think?!
The draft legislation for the Finance Bill 2019 – 2020 was announced in July 2019. The adjustments largely concern people who provide services through intermediaries in the private sector. This is also known as ‘off-payroll working or IR35’. The changes come into effect on 6th April 2020.
What do the changes mean?
Ultimately, the changes mean that the responsibility for determining whether the off-payroll working rules apply will move to the organisation receiving an individual’s services. So, if you hire a contractor or self employed individual to work for you, it’s your responsibility to ensure you’re compliant with HMRC’s new rules. Failing to do so could result in the tax man knocking on your door – yikes!
Are there any exemptions for small businesses?
The good news for small businesses is that legislation will apply only to ‘medium or large’ businesses. Are you a small business? If you meet two or more of the criteria below, then yes you are!
- Annual turnover is no more than £10.2 million
- Balance sheet total is no more than £5.1 million
- No more than 50 employees.
If you meet two or more of these criteria, responsibility for determining the IR35 status of a contract remains with the Person of Significant Control (PSC) and the changes don’t apply. Hooray!
However, there are no small business exemptions for public sector organisations and the legislation will apply to all end-clients engaging PSC workers in the public sector. So if you’re a small business working in the public sector, you need to be prepared!
The IR35 Status Determination Statement (SDS)
If you need to be compliant with the new changes, you’ll need to confirm the IR35 status of a contract by providing a ‘Status Determination Statement’ (SDS). The SDS must be provided in writing to the PSC worker i.e. the contractor. If an Agency is involved in the labour supply chain, a copy must also be provided to the agency responsible for paying the PSC. That’s a lot to remember!
Transfer of employment tax liabilities to another relevant person
The legislation is designed to ensure the organisation or agency with responsibility for issuing the SDS will be responsible for any employment tax liabilities. It also means that HMRC will be able to recover tax liabilities from another ‘relevant person’ – this will be anyone involved in the payment to a PSC. In other words, HMRC can recover tax from the highest party in the labour supply chain which is not complying with the legislation.
5% administration allowance withdrawn – bummer!
The 5% allowance for PSCs to meet the costs of administering the off-payroll working rules will be mostly removed. However the allowance will continue for PSCs working with ‘small’ end-clients.
Check of Employment Status Tool (CEST)
The Check of Employment Status Tool (CEST) should be improved and further guidance and support for businesses should be available at HMRC. Or if you’d rather not have to worry about this, you can join the Mazuma gang and we can take care of it for you!
What next?
In summary, the new IR35 rules may seem daunting. The changes aren’t massive, but they’ll definitely affect the way that businesses work with freelancers and contractors. But don’t worry – Mazuma is here to help!We are an online accountancy firm providing an online, hassle-free accounting experience. Mazuma makes everything easy, taking the stress away and allowing you to focus on what’s important – your business. Why don’t you let us mind the accounting while you mind your business? Get a quote today to see how we can help.
