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Let’s be clear - IR35 isn’t new. IR35 was introduced in the UK in April 2000 as a tax avoidance legislation which was designed to tax those working in ‘disguised employment’. In real terms, any off-payroll temps, interims or contractors working through an intermediary, i.e. a limited company, in roles that are usually performed by PAYE workers but pay less National Insurance contributions (NIC) and Income Tax are typically considered to be disguise employees.
In the year 2000 HMRC estimated it would generate an additional £220m NIC and £80m Income Tax per year. However, during the 2002/2003 tax year, information received from a freedom of information request revealed that IR35 had only generated a further £9.2m.
The “why now?” is unsure. Although it might be seen as a way to increase revenue in order to reduce the country’s national deficit. As this isn’t a new legislation scheme, it may have perhaps been a simple option to tighten the scope and administrate changes.
The “what’s changing?” is the key issue to be addressed. It all comes back to who decides whether or not a role is in or out of the IR35 scope and who is liable for incorrect tax payments if investigated by HMRC. Up until now, the temporary worker has decided whether to opt in or out of assignments as they arise. HMRC have relied on the temporary worker to select the correct tax status and then pay the appropriate tax and NIC. As of April 6th 2017, this all changes. Now the end client, the public sector body (or a body falling under Freedom of Information Act) decides whether or not the job they employ the temp to fill is in or out of scope of IR35.
If you are currently working in an assignment which is expected to continue past 6th April 2017, you will need to check your tax status and provide this information to the end client. This can be done through either the HMRC or QDOS website.
That’s great news - continue as you are.
Options 1 and 2 - Either you (if contracted directly) or your agency, will be required to renegotiate your contract with the end client.
Option 3 – This option has significant implications for the payroll of the end client or recruitment agencies. Current payroll systems are set up to pay gross salaries, however moving forward, all tax needs to be deducted at source and a net salary paid to limited companies. As this is a big change, some end clients may refuse to hire limited companies.
Option 4 - Nobody wants to see option 4!
There will be new IT systems to install, innovative marketing campaigns to develop, cost reducing measures implemented as well as improvements in people management and HR guidelines to be made. In conjunction with the ongoing requirements to cover long and short-term sickness, maternity leave and covering hard-to-fill permanent roles it is clear that the demand for highly qualified, highly skilled temporary workers will continue to grow throughout the coming few years.
While there are some significant changes being introduced which will see limited companies paying the Income Tax and NIC of their temporary staff, this won’t affect the need for such professionals within the market. For both parties there are options; working as a PAYE employee, through an umbrella company, on payroll as a fixed-term contract or in an out of scope limited company role.
If you would like any further information or to discuss your options, please do not hesitate to get in touch.
This material is intended for general information purposes only and does not constitute legal advice. Specialist legal advice should be taken in relation to specific circumstances.