Anyone and everyone who has been employed in the UK has heard of the IR35, or Off Payroll Working Rules. This is a government tax legislation that’s been in place since 2000. The Government will assess the success of the IR35 .
Employed versus Self-Employed
IR35 ensures individuals who work as an employee, still pay a similar Income Tax. Many of these people include those employed via an intermediary (i.e. recruitment agency or contractor). Take for example the director of a company. The director will register their company as their employer and be taxed under PAYE. These people are employed by their own company and are therefore not Self-Employed. Why choose this approach? When it comes to paying taxes, being registered as self-employed actually comes with a higher set of responsibilities. You may pay less tax this way but it is your responsibility to document your financial accounts and pay taxes yourself. Employment is the better option.
No matter what your employment status is, the IR35 Off-Payroll Working Rules essentially ensure not equality but fairness among those who work in a similar way.
If you’re wondering about changing your employment status for the benefit of yourself and/or your business, it’s always helpful to talk to a business advisor.
Public and Private Sector reforms
When the government set out to reform the Off-Payroll Working Rules in April 2017, one change made in the public sector determined that,
“organisations who take on contractors are responsible for making sure they and their workers pay the right tax. This has proved to be effective in improving compliance, and the government estimates the reform has already raised an additional £550 million in Income Tax and National Insurance contributions in the first 12 months since it was introduced.” – Gov.uk
The private sector medium and large organisations should all do the same. The private sector will prepare in 6 months, but the public sector have longer.
A final review was launched in January 2020 with focus on implementation of the reforms coming into play April 6.
The government have also investigated whether any additional support is needed to ensure that the self-employed, who are not in scope of the Off-Payroll Working Rules, are not impacted.
Who will this effect?
- Recruitment agencies who supply workers operating through intermediaries.
- Medium to large businesses in industries like construction, using the services of ‘off payroll’ workers.
- The worker.
Some organisations will be wary about contracting out work as it will now be their responsibility.
For recruitment agencies, understanding IR35 is vital. Now, they need to ensure their end-clients (the employers) understand it too which certainly leaves room for mistakes.
The risk is that carelessness, poor understanding and incorrect decisions made on the part of employers.
HMRC is continuing with its program of support and education activities. This will include one-on-one engagement, workshops, and webinars
Business advisors like ours at CBHC have in-depth expertise to ensure money moves in the right directions and you avoid complications for the growth of your business. If in doubt, seek us out.
We will be making efforts to understand more about changes to IR35 Off-Payroll Working Rules in the coming months. We’ll be sure to share what we learn with you.