Changes to IR35- Expected April 2020
IR35 is the off-payroll working rules for clients, workers and their intermediaries.
The legislation was designed to assess whether a subcontractor is actually acting as a subcontractor, or whether they are a ‘disguised employee’. By establishing this, HMRC can then ensure tax avoidance is not happening.
Under the current IR35 rules, the off-payroll working rules can apply if a worker is providing their skills under an intermediary; this can be a limited company or individual sole trade.
Within the public sector, it is the client’s responsibility to decide the employment status.
Within the private sector, it is the limited company or individual’s responsibility to decide their employment status, for each contract.
From 6th April 2020
The Government published, on the 11th July 2019, the new legislation which states changes to IR35, coming into effect on the 6th April 2020.
The legislation has changed so that the public sector, authorities, and medium and large-sized private sector clients, will be responsible for deciding if the rules apply.
As a worker providing services in the medium and large-sized private sector, this means the decision is no longer yours.
Workers providing services to small companies in the private sector have had no change in the legislation. Therefore, they will remain responsible for deciding their employment status and if the rules apply.
Due to this change, the private sector clients are now liable if they make the wrong decision. This may encourage clients to take a more risk-averse approach when applying IR35 rules.
If IR35 applies – You are a deemed employee
- No more self- assessment tax returns (unless you have received other taxable income)
- Job security for the contract term.
- However, you may have to alter your way of working to comply with the company’s procedures.
- If you earn over the PA you will have to pay the relevant taxes on a monthly basis, which would be taxed at source and be significantly higher.
- Although you may have to pay tax like an employee, the employment status does not change, and so you do not receive the rights to employment benefits. However, this is in dispute and may be subject to change.
Can you claim employee rights?
Employee rights include:
- Holiday Pay
- Sick Pay
- Maternity Pay
- Pension contributions
If you wanted to claim employee rights, you would need to go through the Employment Appeals Tribunal (EAT), please be aware that you must approach the EAT within three months of the contract end date.
This change is HMRC’s way of monitoring, and preventing tax avoidance, but unfortunately, it is not in the best interest of the worker.