April 2020 Private Sector IR35 Changes Confirmed
On the 11th of July 2019, the UK government confirmed its commitment to extend the IR35 legislation reforms to the private sector. Draft legislation surrounding the change has been published, with the legislation being enforced from April 2020.
With the consultation period concluding on May 2019 the government have now formally announced through the draft legislation how IR35 reforms will be extended into the private sector. This document provides a summary of the proposed changes.
Who will be affected by the IR35 Private Sector changes?
- Contractors providing a service through an intermediary, such as a Personal Service Company (PSC).
- Medium to large-sized organisations who engage with individuals via a PSC. Medium to large-sized organisations are those with a turnover that exceeds £10.2M.
- Recruitment agencies and other organisations who supply personnel operating via PSCs.
What is changing with IR35 reform?
The key changes under the draft legislation include:
- Determining IR35 Status: From April 2020 it will be the responsibility of the client (the business or individual to whom the PSC is carrying out work for) to determine whether a contractor is working inside or outside of IR35 regulation.
- Payment of tax and NI: The entity in the contract chain that is paying the PSC (the “fee payer”) will now be responsible for the payment of tax and National Insurance to HMRC on behalf of the contractor.
- CEST Improvements: The HMRC tool for determining a contractor’s IR35 status will be reviewed and reformed ahead of the April 2020 implementation date. The current process is deemed to be overly complex and not fit for purpose.
Where is this applicable?
The legislation will be applied to all organisations operating within the United Kingdom.
When will the IR35 government changes happen?
The new legislation, extending IR35 into the private sector, will be enforced from 6th April 2020.
Why are the IR35 changes being made?
The main purpose behind the change in legislation is to:
- Improve compliance: The change is aimed at improving compliance, in relation to the payment of tax and national insurance for those working through Personal Service Companies. Currently, the government believe that non-compliance is widespread with only 10% of individuals who should be inside IR35 paying the correct levels of tax and National Insurance.
- Align industries and sectors: As the government believe the public sector IR35 reforms have been a success they feel it necessary to align the private sector. It is believed the changes in the public sector have seen an extra £550M in extra National Insurance and tax payments.
- Ensure fair employment: The new legislation ensures that individuals who work as employees but operate through a PSC are paid like employees. This means regardless of work structure, those doing the work of an employee will pay the same National Insurance and tax contributions (these rules do not affect genuinely self-employed individuals).
If you are concerned about how these new IR35 rules may affect your business or if you would like further information, do not hesitate to contact us on 0203 019 4990 or email us at firstname.lastname@example.org.