The future of the contractor in the wake of the changes announced to IR35 have resulted in a flurry of opinion – the subsequent delay by the Chancellor was likewise met with consternation. Uncertainty has fuelled speculation about what all this means for the future of the contractor and what the Government is trying to accomplish with these changes? This article will explore key themes around off-payroll worker rules and how they could impact contractors working in the private sector.
What does IR35 mean?
IR35 is a form of Government legislation that was introduced to clamp down on what HMRC perceived to be a form of tax avoidance that would see individuals avoid paying employee income tax and national insurance contributions through the delivery of their services through an intermediary and thus paying themselves in dividends (which come at a lower tax rate).
What is set to change?
The Government has already ‘clamped down’ on IR35 abuses within the public sector. In 2017, the Government was lobbied that it must sort out the chaos of IR35 issues within the public realm before focussing on the private sector. In response to this, HMRC updated the rules on off-payroll work within the public sector. Individuals using managed service companies are now facing changes.
“The off-payroll working rules are in place to make sure that, where an individual would have been an employee if they were providing their services directly, they pay broadly the same tax and National Insurance contributions (NICs) as an employee. If you’re a public authority, you need to decide whether the off-payroll working rules apply because the appropriate conditions have been met. You’ll also need to deduct tax and NICs if you pay the worker’s intermediary directly. If the worker is paid by an agency or other labour provider, you’ll need to tell the body that pays the worker that, in your view the off-payroll working rules should apply.”
However, these changes haven’t been as easy as first assumed. The assessment tool used to check whether a public sector worker fits within the IR35 framework has been deemed “unfit” and that the changes resulted in a “mass exodus of IT contractors out of government.”
The announced rollout for the private sector, after so many issues within the public sector, has left many people scratching their heads as to why the government is moving so fast. The private sector IR35 reform are designed to end ‘disguised employee benefits’ of personal service companies. Government has argued for decades that many Ltd company owners are ‘disguised employees’ and that they have unfair tax advantages.
The regulations implemented in April 2017 for contractors working in the public sector are now to be forced upon the private sector. The 2018 Budget saw the Chancellor announce ‘off-payroll’ rule changes as the IR35 rules extend into the private sector. The changes will net the Government an extra £1.3 billion a year by 2022/23.
What Do Contractors Need To Do?
The first thing you need to do is to take these changes in your stride. The reason for this is that there has been what some describe as an “onslaught” of regulatory activity surrounding the contractor sector in the UK. Even when the IR35 was first mooted back in the mid-90s, the demise never happened. In fact, the sector boomed.
The loophole protecting contractors working for small businesses will likely have minimal mitigating support for the wider contractor community in the UK. Most contractors work for large business organisations and that the April 2020 changes will impact the way contractors do business.
However, as the Government has yet to decide upon the ways and means of this proposed IR35 crackdown. It would be premature to start taking actual decisions on IR35 private sector changes. As the Chancellor delayed late last year the original rollout until April 2020, this gives you scope to understand the dynamics of the change that will affect the contractor sector and your personally.
In the first instance, a contractor needs to determine their correct employment status and to do this they need to work with their clients. Secondly, they need to dispute any assessment outcomes from HMRC with haste. This means businesses need to form plans and to make sure they have the means to go live by April 2020 in full compliance with the law.
How Can Prestige Business Management Help Contractors?
There are just under a year and a half before IR35 changes go live in the private sector. Contractors running their own business and businesses that employ contractors need to make sure they plan for these changes, but they also need to follow developments in this ever-changing landscape.
Some believe the Government might cancel this proposed IR35 private sector roll-out, but the political difficulties around increasing business National Insurance contributions have placed existential pressures upon the Government. This is a less politically expedient way for the Government to raise funds without a major crisis – like the one seen when the Chancellor hinted at increasing NIC4 contributions.
Prestige Business Management is a professional accountancy services company. We can provide contractors with the right financial and accountancy support advocacy for their own unique needs. Prestige Business Management can tailor the right solution for your own bespoke demands.
Prestige Business Management is a fully chartered accountancy practice that provides tailor-made accounting, booking and payroll solutions designed for a changing financial landscape. Our disruptive services can help your business grow and diversify.
Why not get in touch with our contractor team today on 0203 773 2927 to find out more about IR35 changes and how the right business support and accountancy advice could help drive you towards a brighter and profitable future as a contractor?