April 2020 will see a change to the IR35. This anti-avoidance tax legislation aims to reduce the amount of contractors who are believed by HMRC to commit fraudulent tax claims. These are people who tend to work full-time, but charge for their services via a different route to normal. This allows them to pay less taxes than those employed on a payroll.
Does my business fall inside of IR35 guidelines?
To establish whether or not your business falls inside or outside of IR35 guidelines, use the following as a checklist. If you answer no to all questions, your business falls outside of IR35 guidelines. If you answer yes to one or more of the questions, your contract is likely to stand within IR35 guidelines, and thus be subjected to tax and National Insurance deduction.
- Is your client obliged to offer you paid work and are you obliged to take it?
- Does your contract state that you can’t take on other clients while working for them?
- Does your contract require that you, and only you, must see a job through from start to finish?
- Is your contract relatively loose in the sense that the client doesn’t set working patterns or a great deal of impact with regards to how work is managed?
The government has argued that it is not fair for people who’s job falls outside of IR35 guidelines to pay less tax than people who’s job falls within the guidelines. HMRC has stated that the arrangment for those who fall outside IR35 guidelines are frequently commiting fraud and therefore the arrangement needs changing. HMRC goes on to suggest that non-compliance in the private sector will have costed the government £1.3 billion by 2023/2024. For this reason, the reforms that are already in place in the public sector will be carried forward to the private sector in 2020.
The changes will mean that the responsibility of IR35 obligations will fall on the end user, as opposed to the contractor. If the IR35 applies, the fee payer will be required to successfully account for and pay the related tax and National Insurance to HMRC, as well as the employers NIC.
What do I need to do?
It is advised that medium and large businesses within the private sector ascertain whether the IR35 regulations relate to any employees and notify the fee payer.
If you want to check whether any contracts are applicable for changes to the IR35 in 2020, you can click here.
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