HMRC finally started to enforce the off-payroll working rules (commonly known as IR35) for the public sector in 2017. Now, those same rules are about to be applied to medium and large businesses from April 2020.
IR35 was introduced in 1999, to curb the proliferation of “personal service” limited companies in the IT sector. Tax benefits of providing services through a limited company are greater than being employed.
Failure to enforce the legislation and threats by HMRC, the end of personal service companies is nigh.
The off-payroll working rules faced more scrutiny after the arrival of the latest IR35 consultation. The Government asked for feedback from contractors, recruitment agencies and contractors’ clients – all of whom will be affected by next year’s tax changes.
Previously, contractors were obliged to decide for themselves whether the IR35 legislation applied. HMRC tried to “help” contractors decide with various online tools. The tools were all skewed to including the contractor in the legislation.
Here comes change
From April 2020, the responsibility for setting IR35 status will be passed from contractors to the medium and large private sector companies that engage these workers.
The consultation document included a series of questions posed to stakeholders. Information on HMRC’s specific IR35 reform plans are also included in the document. These plans will be in which will be introduced on 6 April 2020. Click here to read the current ‘Understanding off-payroll working (IR35)’ guidance.
While nothing has as yet been confirmed, the assumption is that “fee payers” will carry the liability in the private sector.
The document advised companies meeting HMRC’s definition of “small” aren’t affected. This means contractors working for “small” companies will continue setting their own IR35 status.
The IR35 consultation confirmed private sector changes look similar to public sector reform. It seems there may be a few small tweaks, but HMRC hasn’t been particularly imaginative despite promising to review the true impact of public sector reform.