IR35 first came into the limelight in 1999 before being introduced formerly in 2000. Its objectives were to foster fairness in taxation and National Insurance Contribution (NIC) as it gave the end-users a responsibility to determine the IR35 status of limited company contractors. Since then, the legislation has faced ups and downs, and it was only on 6th April 2017 that IR35 was fully-implemented in the public sector. The implementation was a success, and it informed the decision to apply IR35 to the private areas. Contractors, recruiters, and end-users (clients) need to familiarize themselves with the off-payroll working as its inauguration is due very soon. The Chancellor announced during the Autumn Budget 2018 that IR35 would be applied on medium and large businesses starting 6th April 2020.
Small business, as defined in the draft finance bill of 11th July 2019, need not worry as the legislation only applies to medium and large companies. The critical issue that stakeholders in the private sectors need to know is the fact that the end-users will have the capacity to determine the IR35 status of the contractors. Contractors falling under off-payroll working will be liable to a PAYE and National Insurance Contribution. As a result, clients need to familiarize themselves with the legislation, and they can do so by visiting the HMRC site, which published the policy rollout procedure on 5th March 2019. Contractors are adversely affected by IR35, and they should prepare for its inauguration by familiarizing with the outlined procedures and understand if they fall under off-payroll status. Recruiters are also not spared by the legislation as they will have to operate payrolls for workers using their own companies.
There is still consultation ongoing, but it remains realistic that on 6th April 2020 IR35 will be implemented in the private sector. It will be a game-changer as the government anticipates to increase its taxation and NIC. It is estimated that over 170,000 individuals working under their own companies will feel the impact of the implementation come next year. Nearly 60,000 organisations that use workers employed by public service companies will also be affected. The organisations will be responsible for determining the IR35 status of the contractors. It is also anticipated that over 20,000 recruiters will be affected once IR35 is rolled out in the private sector. It means that contractors, recruiters, and the end-users will be the key players once the off-payroll working is inaugurated in 2020.
The implementation of IR35 in the public sector has been marked as a success by the government. The same is expected when it will be introduced in the private sector. There will be challenges in meeting the proposed guidelines, and as a result, clients, contractors, and recruiters need to take a lead role in seeing the successful implementation of the program. All parties need to understand which contractors fall under IR35 status and make appropriate strategies to remit taxes and National Insurance Contributions. Implementing IR35 is challenging, and all stakeholders need to research appropriately, or else they will find themselves on the wrong side of the law.
If you are an IT Contractor or Engineering Contractor working in private sector, call us for further advice and tax planning.