Background:
IR35 is properly known as the Intermediaries legislation and came into force in April 2000 as part of the Finance Act. It set out details of new legislation relating to intermediaries (including personal service companies or other companies or partnerships). Since then, IR35 has been used to determine how an individual working via a personal services company should be taxed.
In brief, the IR35 rules apply where an individual works through an intermediary, such as a personal services company and provides their services to an end user client.
If that intermediary did not exist, but the individual looked like an employee of the client for tax purposes, then that assignment is deemed to be ‘inside IR35’ and the individual’s pay should be subject to PAYE tax and national insurance. Employers’ national insurance will also be due.
From 6 April 2017, responsibility for assessing engagements with a Personal Services Company working in the public sector only has shifted to the public sector end-user. Consequently, where engagements between a public sector end-user and a Personal Service Company have the features of employment, the fee payer must account for tax and NIC under PAYE when paying the worker (including employer NIC & apprenticeship levy) = Extra cost for the fee payer.
Due to non-compliance, the Government changed the application of the IR35 rules in the public sector in April 2017 – these are known as the ‘off-payroll rules’. The Government believes the time is now right to extend the off-payroll rules into the private sector and has published its consultation on the detail.
That consultation closes on 28 May 2019 and draft legislation is expected in summer 2019. The off-payroll rules will then apply in the private sector from 6 April 2020.
IR35: What We Know So Far
The following guidelines will outline what we know so far from the Public Sector to forecast what the impact will be for the Private Sector, ahead of the draft legislation in summer 2019.
1. The public sector end-user must provide their status determination to the party they contract with at the start of the contract
2. This must be done by the time that the contract starts or, if later, before the worker starts to provide their services
3. The party that the end-user contracts with has the right to ask for the reasons for that determination, and the end-user must provide those reasons in writing within 31 days of receiving the request
What's being proposed?
1. The public sector end-user must provide their status determination to the party they contract with at the start of the contract
2. This must be done by the time that the contract starts or, if later, before the worker starts to provide their services
3. The party that the end-user contracts with has the right to ask for the reasons for that determination, and the end-user must provide those reasons in writing within 31 days of receiving the request
HMRC expect that the end hirer at the top of the supply chain will assure the compliance of other parties further down the labour supply chain, if they are ultimately liable for any tax/NIC loss to HMRC that arises as a result of non-compliance.
IR35: Becoming Compliant
In order to ensure that you and your supply chain is compliant with the new legislation, there are a number of questions that are posed below with some guidance on what action you could take to help your organistion become compliant:
Question: Are all current records accurate and complete?
Action:
Question: Who will review contracts and record relevant information?
Action:
2. Consider the impact of negative publicity in the event of parties within your supply chain failing to make the appropriate stoppages and the likely transfer of debt up the supply chain to the end hirer brought by a claim from HMRC
Action:
Question: How can increased risk exposure be managed?
Action:
The only way to remove any risk associated to the change in IR35 is to ensure all workers are engaged as PAYE.
1. IR35 identifies individuals working via intermediaries who are in fact disguised employees
The Government are consulting with organisations on the proposed changes. That consultation closes on 28 May 2019 and draft legislation is expected in summer 2019. The off-payroll rules will then apply in the private sector from 6 April 2020. In order to get every organisation ready for 6 April 2020:
1. Identify all current direct Personal Supply Companies’ engagements and determine if you are likely to be caught by the rules based on current assignments
Watch out for Staffline’s further guidance following the confirmation of the final legislation in summer 2019.
Watch this short clip below for a round-up of Neil's presentation, focusing in particular on the impact of IR35 in the private sector, at our latest Enabling the Future of Work™ conference.
An Overview of Staffline:
Established in 1986, Staffline is now the UK’s largest recruiter and workforce provider, delivering OnSite workforce solutions to leading brands. We work in partnership with clients and candidates, meeting business needs and matching people with opportunities.
We specialise in large-scale recruitment, providing teams to help businesses succeed. Our support is flexible to meet changing demands.
We make the world of work simple, helping companies to find the right people and perform at their best. Our service and pricing are bespoke, and we offer complete protection on compliance and ethical standards.
Our OnSite services support a range of sectors including agriculture, food production, logistics, transport, manufacturing and the automotive sector. We’re based at over 400 sites nationwide and find work for over 60,000 people each day.
Our new technologies include the AI chat bot, delivering ‘always on’ communication, the Universe platform, a game-changing candidate interface, and industry-leading customer experience management programme ‘Have your Say’. These innovations drive our customer-centric approach. We lead where others follow.
The Staffline Group also includes leading public service provider PeoplePlus - which helps tens of thousands of unemployed and disadvantaged people find work each year.
Find out more at: www.staffline.co.uk
