What are the changes to IR35?
Essentially what currently applies in the Public Sector will be applying to the Private Sector from April, subject to the passing of the relevant legislation and an announced review.
The new IR35 rules to be introduced in April 2020 shift responsibility for assessing IR35 obligations from the contractor or Personal Service Company (PSC) to the end-user, that is the company that uses contractors and applies to:
where the end-user is a small company, the PSC will continue to be responsible for assessing whether IR35 applies.
The Companies Act 2006 defines a small business as a business with two or more of the following features:
Where the end-user concludes that IR35 applies, the fee payer (which may be the end-user themselves, a recruitment agency, or other third party paying the intermediary) will be responsible for accounting for and paying the related tax and NIC to HMRC, including the additional cost of Employer’s NIC.
Under the proposed changes, the new rules aim to reduce the cost of non-compliance and make it easier for HMRC to monitor and enforce compliance in the future.
It remains unclear due to the current lack of guidance, but for small businesses we expect that the fee payer, such as the recruitment business, will not have any additional obligations other than the existing requirement to submit a quarterly intermediaries’ return to HMRC, with details of workers placed with clients where they do not operate PAYE.
Barclays Bank's response has been to transfer all contractors to PAYE to avoid IR35 issues! They are not alone in doing this.