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The IR35 reforms
will be implemented this April—do you feel prepared? Do you know how
to mitigate the risks if you’re a medium-sized or large-sized company hiring
contractors and freelancers? Do you know where you need to go to get the information
This article aims
to give you a quick overview of what's coming and how it will affect you.
You may also want to see our article covering the questions asked at our IR35 events, and the answers from our experts: IR35 reforms 2020: 16 questions asked at LexisNexis events and the answers from industry experts
The current IR35
legislation in the UK stipulates that contractors pay equal tax and National
Insurance contributions (NICs) to that of a regular employee.
The new IR35 rules will
be implemented in April 2020 for private sector contractors. The changes will mean
that medium and large companies will be liable for assessing a contractor’s employment
status relating to IR35—a responsibility which previously sat with the contractors themselves.
The 2020 reform
will bring those operating in the public sector in line with public sector
laws, where the reform was implemented in 2017.
published two draft Regulations that explain how it will recover unpaid income
tax and NICs from April 2020, when the new IR35 rules come into effect.
The new rules will make medium to large employers in the private
sector and who engage contractors via intermediaries (the clients), potentially
liable for income tax and NICs that should have been paid on the contractor’s
earnings by other parties who are further down in the supply chain.
The draft regulations confirm that HMRC will first seek to recover
any unpaid tax and NIC liabilities from the agency the client contracts with,
where this agency is UK-based (agency one in the labour supply chain). Where
HMRC are of the view that there is no realistic prospect of recovering the
outstanding Income Tax or NICs from agency one, HMRC will then seek to recover
unpaid liabilities from the client. HMRC will issue a recovery note to transfer
the debt and there will be a right to appeal.
HMRC have issued a technical note to accompany the draft
regulations. The note states that HMRC will not transfer the debt in the case
of ‘genuine business failure’ of the party ordinarily liable to pay income tax
and NICs, but it does not explain what constitutes a ‘genuine business
on the draft regulations closes on 19 February 2020.
(Radius Law: http://radiuslaw.co.uk/blog/2020/1/26/ir35-news)
At our recent Breakfast
Briefing event on IR35, our partner Haines
Watts, provided the following cheat sheet to outline the differences
between these two terms:
If you work in
the public sector, you may also want to view LexisNexis’ Practice Note:
IR35—off-payroll workers in the public sector
In employment law, a person’s employment status helps determine:
However, a person may have a different employment status in tax law.
At our recent In-house event, Sandra Martins of Radius Law, gave the following simple overview to differentiate a worker’s status in relation to IR35:
When defining employment status of an individual, generally speaking,
someone is self-employed if:
Overall, probably the
most important factor is Control of the Individual and the work—as above, who
is responsible for the individual, their workload, their assets. However…
information, you may want to use this guide to check employment status for tax:
Check employment status for tax
Also, see HMRC’s quick overview on types
of employment status and employment rights.
Last points to
reading, see these LexisNexis recent Practice Notes:
The intermediaries legislation—IR35
IR35—practical considerations for the end client
IR35—practical considerations for personal service companies
IR35—key difficulties and HMRC's approach
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Amy is an established writer and researcher, having contributed to publications, such as The Law Society, LPM, City A.M. and Financial IT. Her role at LexisNexis UK involved leading content and thought leadership, as well as writing research reports, including "The Bellwether Report 2020, Covid-19: The next chapter" and "Are medium-sized firms the change-makers in legal?"
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