In April 2020 there will be IR35 changes for the private sector. As a result a large number of contractors will be affected.
Why are the IR35 Changes for the private sector happening?
Despite HMRC’s best efforts and many changes to IR35 over the years since its introduction. The Government still claim that too many Limited Company owners are still illegitimately working outside of the rules.
As a result, at the 2018 budget, the chancellor announced IR35 Changes for the private sector. This will mean the current rules will extend to most of the Private sector in April 2020.
It is expected that this new measure will net £1.3 billion per year by 2023.
IR35 Changes for the Private Sector 2020 – Small Business exemptions
Only Small business clients will be excluded if they are the end user. If so, the current private sector IR35 rules will continue to apply.
HMRC’s consultation document proposed that ‘Small’ will be based on the Companies Act 2006 Definition.
- Annual Turnover – Not more than £10.2m
- Balance Sheet – Not more than £5.1m
- Average no Employees – Not more than 50
Current IR35 Rules
Currently the IR35 Rules for the public and private sector differ.
In the public sector, it is the end user who is responsible. They need to decide whether the contractor is an employee in the absence of an Intermediary.
Therefore if deemed to be an employee. The entity which directly pays the contractors intermediary is responsible for accounting for PAYE & NI.
Employment Status and IR35 Changes for the Private Sector 2020
In general most believe the current employment status rules are too complicated.
HMRC currently provide an online status tool checker (CEST). They will usually stand by its decision if the questions have been answered truthfully.
This can cause issues if the Contractor disagrees with the decision reached by the end user.
The HMRC consultation document proposed that. By having an end-user led process, it will enable status decisions to be challenged and ultimately agreed upon.
How should Contractors prepare?
As a result, it seems likely, that most private sector contractors will be impacted by the IR35 Changes in 2020.
This will be because most contractors work for large clients not small companies with 50 employees or less.
If the contractors are deemed to be an employee by the end user. They will be treat as such and the correct taxes need to be paid.
Contractors need to anticipate being deemed an employee and plan for what additional costs will be incurred.
The FCSA has warned contractors from considering joining non-compliant tax avoidance schemes as an alternative to the Limited company model.
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