HM Revenue & Customs (HMRC) has published new guidance on the expansion of the IR35 requirements to contractors working in the private sector.
IR35 governs the tax status of people working through personal service companies (PSCs) as contractors or consultants.
The new rules are intended to prevent disguised remuneration strategies used by some businesses to reduce their tax and NIC bill.
So far, the rules have only required public sector employees to determine whether contractors working for them should be taxed as employees.
However, from April 2020, the same rules will also apply to bodies in the private sector. To help employers prepare for the changes ahead HMRC has published the following tips:
- Look at your current workforce (including those engaged through agencies and other intermediaries) to identify those individuals who are supplying their services through PSCs.
- Determine if the off-payroll rules apply for any contracts that will extend beyond April 2020.
- Start talking to your contractors about whether the off-payroll rules apply to their role.
- Put processes in place to determine if the off-payroll rules apply to future engagements. These might include who in your organisation should make a determination and how payments will be made to contractors within the off-payroll rules.
Currently, contractors working for private sector clients are themselves responsible for making sure they pay tax on the correct basis. HMRC has made it clear that those people who are genuinely self-employed will not be affected.
In light of this change, it is essential that employers and contractors review their working arrangements and put the necessary steps in place to ensure they are compliant.
Incredibly, a survey from the Recruitment and Employment Confederation (REC) found that 91% of its members had only some or no awareness of the changes that are coming into effect.
Failing to comply could lead to a substantial fine, so if you would like assistance with your preparation, please speak to our specialist tax team.