In last weeks budget it was announced that Government / HMRC are pressing ahead with introducing reverse IR35 compliance in the Private Sector. Broadly:
- Engagers rather than Contractors will be responsible for determining the IR35 status of an Engagement, i.e. whether the contract is caught by IR35 or not.
- Engagers will be responsible for deducting Tax and NI for IR35 fails.
- To come in from April 2020
- Promise of no retrospective targeted campaigns addressing the earlier years status of those paying tax under IR35 for the first time (how much this assurance is worth isn’t clear)
- Exemption for Engagers who are “small companies” (broadly turnover under £10.2m)
Notably there are no changes to the IR35 tests – control, personal service, mutuality of obligation, and hence the scope for disagreement about whether an engagement is inside or outside IR35 still remains.
So, thats where we are. All change from 2020. We are promised another consultation on the detail of the changes.
So is it the end of Contracting as it’s known? Probably not. Those of us around in 1999, when the original IR35 press release came out, lived and worked through a period of both gloom and uncertainty, and ultimately a Modus Vivendi came to pass – things were different, there were uncertainties, but broadly there was a way through. There is every reason to think the same will happen this time. Yes, it’s disappointing that these changes are arising, but the need for a flexible labour force is still there, and Engagers will still need cost effective short term labour and specialist skills – the market will adapt to enable this, we are sure.
More to follow in coming months. Meanwhile, its worth reading HMRC’s two documents released in the budget:
Consultation Responses
Summary of Budget 2018 Announcement
These changes will effect many of our clients, working through PSCs. However, equally, many of our clients will have heard of IR35 but have little awareness of it. Briefly:
- Introduced in 2000
- Applies to Contractors / Freelancers working through their own company (referred to as PSCs – Personal Service Company)
- Requires a test for “Disguised Employment” which, if failed, means most company revenue is subject to PAYE/NI
- Traditionally compliance responsibility rested with the Contractor, as Director of their company
- From April 2017, for Public Sector contracts, compliance was moved to the Engager / End Client
- From April 2020, for Private Sector contracts, compliance is proposed to be moved to the Engager / End Client
- Does not apply to Sole Traders,and normally not to Partnerships. Generally only applies to Limited Companies where the activities are labour only and business to business.