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The Treasury expects this IR35 measure to net £1.3bn per year by 2023.
The IR35 ‘off-payroll’ rules will be extended to the private sector from April 2020 onwards, directly affecting a large number of contractors. What exactly does this mean, and what can contractors and clients do to prepare in advance?
The Intermediaries Legislation (IR35) has been around since 2000 – its core aim is to remove the tax advantages of providing services via a limited company for individuals who are not truly in business on their own account. In other words, the rules are aimed at so-called ‘disguised employees’ – people whose working practices are more akin to those of traditional employees.
Despite various amendments to IR35 over the years, successive Governments have claimed that too many limited company owners are still illegitimately working outside the rules.
As a result, new ‘off-payroll’ rules were implemented in April 2017 for contractors working for public sector organisations. Instead of contractors themselves being responsible for determining their IR35 status, this obligation has been handed to the engager of each contractor, i.e. the client. Where a contractor is deemed to be ‘inside’ IR35, the fee-payer must deduct employees’ NICs and income tax from the contractor’s pay, as well as paying employers’ NICs.
Unfortunately, the tools and information required for clients to make an informed choice have been widely criticised (particularly the online CEST employment status tool), and given the penalties for making an incorrect employment status determination, some clients have opted to make blanket ‘inside’ IR35 decisions.