IR35 reforms 2020: What is changing and how can you reduce the risks?

IR35 reforms 2020: What is changing and how can you reduce the risks?

 

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 you’re missing?

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 basics

 

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.

 

The detail: What is changing?

 

HMRC has 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 failure’.

The consultation on the draft regulations closes on 19 February 2020.

(Radius Law: http://radiuslaw.co.uk/blog/2020/1/26/ir35-news)

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About the author:

Amy leads the thought leadership and content strategy for LexisNexis UK. Her work appears in marketing campaigns, in industry press and in legal trade magazines. She is an established creative writer and researcher, with her articles appearing in national publications, such as City A.M. and Financial IT. She is also one of the writers and digital editors of LexisNexis' insights blogs including the Future of Law, and the In-house blog.