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IR35 was introduced in April 2000. It broadly means that when a worker is engaged through an Intermediary under terms and conditions which are indicative of employment, PAYE and NIC apply to payments received from that contract. Determining employment status is a complex area with slightly different rules for tax, national insurance and employment rights.
What is changing?
From 6 April 2020, the responsibility for deciding whether these rules apply shifts from the worker’s business to the end user. This is subject to exemptions for certain small businesses. The responsibility for accounting for tax and national insurance also transfers from the worker’s intermediary to the “fee-payer”. If the correct procedures are not followed, the liability for any underpaid tax and national insurance, plus interest and penalties can transfer up the supply chain.
In practice, this means that there will only be a marginal impact on worker’s businesses that are currently complying. However, for those that are not, there will be a significant impact on net pay. Who bears the additional costs will depend upon supply and demand.
Who is affected?
• All medium and large businesses who use contractors, sub-contractors, freelancers, employment business or labour agencies.
• Any employment businesses or labour agencies who supply workers engaged through limited companies to end user clients.
• Any workers who provide their services to medium and large businesses.
• Any advisers who work with any of the above businesses.
What do you need to do now?
We currently only have draft legislation, however, waiting for the final rules will not allow you enough time to plan and implement the legislation properly.
You need to:
• Identify whether there are intermediaries in your supply chain, which may not be immediately obvious.
• Communicate with all the parties affected including providing necessary training and updating software.
• Update contracts.
This legislation has been operating in the Public Sector since 2017. Many organisations have incurred significant liabilities because they were not ready to act or compliant from Day one.
You also need to ensure that you communicate with all your employees to avoid being party to the criminal offence of facilitating tax avoidance.
If you would like an initial free, no obligation consultation, please do not hesitate to contact Sue Ollerenshaw on 07774 103752.