Are you ready for the move to employer responsibility from April 2020. IR35 is becoming an increasingly hot topic as we approach the date of April 2020 when legislative change moves responsibility from the worker onto the employer in the private sector.
The history of IR35
The Intermediaries Legislation was first mentioned in a 1999 Inland Revenue press release. The Inland Revenue had a habit of numbering their press releases. The number of this particular press release was IR35 and the name has stuck!
It was the growth of ‘one man Limited Companies’ that prompted the Government to look at ways of clamping down on the use of such companies to provide personal professional services where the worker was working in a manner akin to an employee, but through their own Limited Company. The benefit to the worker was the reduction in National Insurance payments and the use of dividends to significantly lessen the tax burden for the director.
It was the IT industry that was at the forefront of the attack by HMRC. Employees ceased as such on a Friday and returned to ‘work’ on the following Monday doing exactly the same work in the same place, the only difference being they were working through their own Limited Company.
Employment status is behind the legislation however HMRC have struggled to impose the legislation over the past 20 years, indeed there have been many losses through the Courts where HMRC had attempted to persuade the Courts that deemed employment was appropriate.
So what is changing?
Until now, the responsibility for assessing whether the legislation applies has always rested with the worker (unless they were working in the Public sector when these new rules can into effect on 6 April 2017).
Needless to say, the self-policing method has not yielded the revenue that HMRC expected so they have looked at the Intermediaries Legislation from a different angle.
So from 6 April 2020, the responsibility for assessing whether a worker is caught by IR35 transfers to the engager.
There is, however, an important exclusion – small businesses.
‘Small’ businesses will continue to use to current rules with the responsibility still being with the worker to consider if IR35 applies or not.
The definition of a small business
For the purposes of IR35 to be classed as a small business, two of the following conditions must be met;
- Annual Turnover not more than £10.2 million
- Balance Sheet total not more than £5.1 million
- Number of employees not more than 50
HMRC have updated their employment status indicator tool Check Employment Status for Tax (CEST) service to assist engagers in the decision process.
What do you need to do?
Why send out this notice almost a year before the rules change, particularly when this is still in its consultation stage?
The system is already up and running in the Public sector. Consultation or not, this will become law on 6 April 2020. The consultation process may ‘tweak’ the process, nothing material will change.
Planning! There will need to be a thorough review of contracts and working practices and this should be done sooner rather than later together with dialogue with the workers it applies to.
I am involved in the consultation process with the CIPP in May and will report further following this session.
In the meantime, for further information please contact Paul Chappell on 03331 123456
