Off-Payroll (IR35) in the Private Sector
HMRC is doing all it can to tackle non-compliance with the intermediaries legislation (also known as IR35). Any business engaging with contractors will be affected by the IR35 reform in some way – so it’s important to understand the impact that these changes could have to your business and how you can prepare for them.
As you will know, the IR35 legislation was established in 2000 to deter the use of Personal Service Companies “PSC’s” for facilitating disguised employment. In the original legislation, it was the PSC’s responsibility to self-assess, declare and pay the appropriate tax; however, as of April 2020, the responsibility will shift from the PSC to the end-hirer in the Private Sector.
April is miles away, we have plenty of time to prepare, right? Not when you break it down it’s not…
What does this mean for my organisation?
If your organisation is ‘medium’ or ‘large’ the responsibility will sit with you to decide whether contractors’ roles fall inside or outside of IR35 from April 2020. Your organisation must make each decision with “reasonable care” therefore a blanket ban of PSC’s, or a blanket assumption that all contractors are inside IR35, will not be viable. The assessment decision must be communicated to other members within the supply chain of that contractor so that any intermediaries can withhold the relevant taxes via PAYE. A failure to pass this information on could result in the interception of liability - wherever the assessment has been made incorrectly or without reasonable care, that entity will be liable for any unpaid taxes.
We recommend that our clients engage with a professional expert to perform a risk-based audit of their active contractor base ahead of the legislation taking effect. Experts can also provide guidance around how working practices can be refined, to ensure that future assignments contractually reflect the working practices of each role (which should avoid any discrepancies affecting the assessment of IR35 status going forward). They will also be able to suggest robust processes for making the IR35 assessment with “reasonable care” which should avoid risk-transfer.
Do we have any recommendations?
We recommend Ernst & Young (EY) – a global leader in assurance, tax, transaction and advisory services. Their Global Employment Tax Services team has an outstanding track record in providing consultation in regard to the IR35 reform.
If you would like to learn more about changes to the IR35 legislation - how it may affect your business and what action you can take - contact firstname.lastname@example.org and we will do our best to provide you with essential information and guidance.