ITHR Group consists of multiple specialist Recruitment brands
ITHR Group consists of multiple specialist Recruitment brands
UK compliance
The contractor landscape in the UK is undergoing significant changes with the proposed introduction of 'off-payroll' rules to the private sector in April 2020. These changes, also known as IR35 or the Intermediaries Legislation, will impact have impacted how contractors operating through limited companies are paid and taxed.
Currently, contractors operating through their Personal Services Company (PSC) are responsible for determining their IR35 status in the private sector. However, starting in April 2020, the determination responsibility will has shifted to the end hirer or client. The liability for deducting and paying taxes will also now rests with the fee payer.
These changes were implemented in the public sector in April 2017 and have been in effect since then throughout the private sector. It is important to note that the test for determining status remains the same.
Timeline and Impact
The changes to IR35 took effect from April 2020. The consultation period concluded in May 2019 and draft legislation was introduced in the summer of 2019. These changes have primarily impacted contractors operating through limited companies or personal services companies. However, end clients will also be affected as they must exercise "reasonable care" when assessing each role to determine its IR35 status. It is advised that companies avoid adopting a blanket approach in their assessments to ensure compliance.
The ITHR Group can assist you with navigating the IR35 landscape whether you are a Hirer or a Candidate. Our specialist Compliance team can work with you to implement IR35 compliance processes. We provide robust and bespoke recruitment solutions underpinned by insurance cover and industry leading systems.
Factors Considered in IR35 Assessment
To determine whether a role falls inside or outside the Intermediaries Legislation, HMRC considers various factors, including but not limited to:
- Personal Services
- Mutuality of Obligation
- Right of Substitution
- Financial Risk
- Right of Control
- Proposed Changes and Responsibilities
Currently, contractors operating through their Personal Services Company (PSC) are responsible for determining their IR35 status in the private sector. However, starting in April 2020, the determination responsibility will shift to the end hirer or client. The liability for deducting and paying taxes will also rest with the fee payer.
These changes were implemented in the public sector in April 2017 and have been in effect since then. It is important to note that the test for determining status remains the same.
Reasons for Change
The motivation behind these changes stems from concerns that some contractors and end clients may take advantage of the tax benefits associated with working through a limited company while effectively operating as employees, known as disguised employment. This creates an imbalance where contractors benefit from tax efficiency but miss out on employee benefits such as sick pay and holiday entitlements.
HMRC has indicated that a significant number of contractors who claim to be outside IR35 fail the test. The non-compliance associated with misclassification will cost approximately £1.2 billion by 2022/23.
Timeline and Impact
The changes to IR35 are scheduled to take effect from April 2020. The consultation period concluded in May 2019 and draft legislation is expected to be introduced in the summer of 2019.
These changes will primarily impact contractors operating through limited companies or personal services companies. However, end clients will also be affected as they must exercise "reasonable care" when assessing each role to determine its IR35 status. It is advised that companies avoid adopting a blanket approach in their assessments to ensure compliance.
Preparing for the Future
As the IR35 landscape evolves, it is crucial for contractors and end clients to stay informed and adapt accordingly. Seeking professional guidance and taking a diligent approach to IR35 assessments will help ensure compliance and mitigate potential risks.