Changes to HMRC IR35 regulations 2017
Big news on the horizon, that many of you need to prepare yourself for. With effect from 6 April 2017 HMRC are now introducing changes to IR35 legislation.
What is IR35
IR35 is also known as ‘intermediaries legislation’. In layman’s terms, it’s legislation that affect the tax and NI if someone is contracted to work for a public sector client (the Council) through an intermediary. It also relates to people working in the private sector, but the changes coming in April will affect the public sector workers first. The intermediary can be:
- An individual’s own limited company
- a service or personal service company
- a partnership
What are the changes?
The changes are somewhat significant. The main change being that the responsibility for assessing IR35 status will shift from the individual contractor to the Council where the contractor is on assignment. Therefore, for all workers operating via an intermediary the Council will now be responsible for assessing IR35 status.
If you are employed through a recruitment agency, the result of a worker’s IR35 status must be reported to the agency within a set timescale. The agency will then be the ones responsible for paying tax and NI on their behalf. If you are contracted directly to the Council, then it will be the council that will be responsible for making the relevant tax and NI deductions.
Therefore, it is imperative that you ensure you are 100% aware of who is responsible for what, in relation to your particular situation.
Is there any support/guidance from HMRC?
HMRC are currently developing an online tool of which will be used to determine a consultant/contractor’s tax status. Once it is established that a contract for work is within the scope of the rules, IR35 will apply. This will result in the Council being responsible for deducting the necessary tax and NI contributions and hence making the payment to HMRC.
How can I prepare?
If you are working within the public sector then you need to carry out the following action points:
1) Are the council going to IR35 check each of their service providers and contractors – including those with Limited companies or are they relying on you to do that?
2) If they are going to take responsibility for this, will they be doing that via the HMRC tool or have they another method?
3) If they are not taking responsibility, is your agency going to be carrying out the check
4) Have a conversation with your agency in order to get an idea of how they wish to proceed. Some questions that you might like to ask are:
- What are the timelines of the process likely to be?
- What is their estimation of the tax & NI payable?
If you are working within the private sector then you may not notice any changes immediately, but it is something that HMRC are keen to pursue so ensure that you know as to whether you are working within IR35 or not.
What are my best options if I’m working within IR35?
You have three ‘best options’ here.
- The first being that you are taken on directly as a PAYE member of staff.
- If the above is not an option (for whatever reason) then you can use a PAYE umbrella company who will tax you the same as if you were a PAYE member of staff (beware of umbrella companies offering you a take home package of more than 70-80%).
- If you are employed within your own limited company then you may be able to pay yourself as though you are working ‘within IR35’ and pay yourself the same salary as if you were a PAYE employee, but this will depend on your agency/client rules.
This is a complex area and advice may change as further information is released. Our current advice is that If you are concerned this affects you then in the first instance speak to your agency if you use one, if you are still unsure then contact an IR35 expert and consider IR35 investigation insurance.
Thanks and best wishes