in a nutshell.
IR35 changes - from contractor to client.
For the public sector, IR35 is almost old news. Turn to IR35 in the private sector and there’s a wealth of unanswered questions and confusion. Come spring 2021, contractors and clients need to be ready for the new IR35 rules and, for organisations, now is the time for preparation to begin. Randstad is here to help and share our experience of carefully navigating the public sector through the IR35 changes.
what is IR35 and what are the changes?
IR35 is a set of tax reforms first unveiled in 1999 by the Inland Revenue. The reforms will force medium and large businesses in the UK to set the tax status of their contractors and freelancers. Previously this was set by the contractors themselves.
New IR35 legislation proposed to be introduced in April 2021 is designed to combat tax avoidance. It targets individuals providing their services via an intermediary, most commonly a limited company. Under the current IR35 rules, these individuals assess each contract and determine whether IR35 applies. When it does, income received from that contract should be treated as employment income. This means it’s subject to tax deductions and national insurance contributions.
On the 17th March, Chief Treasury Secretary Steve Barclay announced the Government's decision to delay the implementation of the IR35 legislation by 12 months, with changes now coming into effect from April 2021.
Originally from April 2020, the responsibility for making this IR35 determination will fall to the end-user of the services (typically clients hiring contractors). The organisation paying for the services will be responsible for making the relevant deductions. As of February 7th, HMRC announced that IR35 would only apply to payments made for services provided on or after April 6th 2020 this has now been delayed a year to April 2021.
spotlight on IR35 changes in construction.
Whilst the new rules impact a significant proportion of the private sector, small companies are exempt, IR35 legislation is set to have a significant impact on clients and contractors within construction. With IR35 rules shifting the responsibility for making the IR35 determination to clients, we’ve created a helpful IR35 guide to support organisations ahead of April 2020. It covers everything from ‘what is IR35?’ to the IR35 changes and the HMRC tool to top tips.
IR35 changes for contractors.
We’re often asked what the impact of the new IR35 rules will have on contractors, especially when it comes to contractor’s wage packet. The legislation needs to be finalised but it’s helpful to know that, as a guideline, contractors in scope of the IR35 rules may see a 10-20% reduction on their take-home pay.
is IR35 the end of contracting?
IR35 is the end of avoidance of taxation, not contracting. Fears around the impact of IR35 news on the rule changes set for April 2020 may result in some companies to halt the hiring of PSC contractors. However, most will simply put their current contractors under more scrutiny in line with the new guidelines.
a soft IR35?
In year one Chancellor Rishi Sunak has noted the HMRC will not be heavy-handed in their approach to the IR35 changes come April 6th. From a questioning session in Birmingham during February 2020, Sunak attempted to reassure companies and freelance contractors of a soft approach in the first year. In an attempt to avoid 'disguised employment' and higher PAYE rates, the treasury sees both freelancers and employers attempting to game the system and look to re-gain a projected £3billion over the next four years.
This information was correct at the time of being published (February 2020). Randstad always recommends that clients secure independent legal advice when preparing for the IR35 rules.
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