IR35 Extension Postponed until 6 April 2021
18th March 2020
Yesterday (17 March 2020), it was announced by the UK’s Chief Secretary to the Treasury, Steve Barclay, in the House of Commons, that the government is now postponing the extension of IR35 to medium and large companies in the private sector from 6 April 2020 to 6 April 2021. This is in order to ease the pressure on businesses and individuals struggling with the Covid-19 crisis.
What is IR35 and how could the changes affect my business?
IR35 is a tax regime that currently applies to individuals who provide services to a client through an intermediary, usually their own personal service company or partnership. Broadly, under IR35, such individuals are taxed as direct employees (or directors) of their client and at present, in the private sector, it is the responsibility of the personal service company or partnership to determine whether IR35 applies. However, as of April 2021, this determination will be the responsibility of the client.
Where IR35 does apply in respect of a worker, the client will need to deduct income tax and employee national insurance contributions from the fee that it pays to the personal service company or partnership, and it will need to account for employer national insurance contributions (as it would for a direct employee). The employer national insurance contributions (plus any applicable apprenticeship levy) is required to be paid in addition to the worker’s remuneration.
It had been intended that medium and large companies in the private sector that contract with personal service companies for the provision of workers' services will have to account for tax and national insurance through PAYE from April 2020. This will now not take place until April 2021. This will be in the same way as the public sector has been required to do since April 2017, also known as the off-payroll working rules.
What action should my business be taking now?
Despite the recent postponement of changes, if your medium or large business engages independent contractors, there are some steps which may be appropriate to out in place now to ensure compliance when these new measures do come into force.
These steps may include:
• identifying the number of contractors your business engages through personal services companies, including the service they provide and the roles they perform;
• analysing the existing arrangements to see if independent contractors engaged are properly engaged for tax purposes, and assessing the current contractual arrangements with those contractors;
• putting in place robust internal processes to regularly review the tax status of independent contractors your business engages through a service company in order to assess the application of IR35 and prepare for any subsequent disputes. Preparation to ensure internal processes are streamlined prior to engaging any independent contractors to ensure compliance with IR35;
• a review of changes to working practices when continuing to assess whether the IR35 will apply; and
• setting aside a budget for the additional employer’s national insurance (and administrative) costs related to engaging independent contractors who fall within the IR35 category.
This new regime will place a significant additional financial and administrative burden on private sector companies to ensure that any independent contractors utilised are properly classified and the correct taxes are deducted at source.
Before April 2021, medium and large companies will need to ensure that all existing contractors are engaged correctly to ensure compliance with the new rules, and that processes and procedures are in place to ensure the organisation's continued compliance with the regime regarding new hires.
If you feel that you and your business may be affected by these changes, we at WJM are here to advise you at every step of the way to ensure a smooth transition when these rules take effect in April 2021.
If you have any queries or concerns, please speak to your usual WJM contact in the first instance.
Liam Entwistle: firstname.lastname@example.org
Martin Stephen: email@example.com
John Grant: firstname.lastname@example.org
Andrew Wilson: email@example.com
The information contained in this newsletter is for general guidance only and represents our understanding of relevant law and practice as at March 2020. Wright, Johnston & Mackenzie LLP cannot be held responsible for any action taken or not taken in reliance upon the contents. Specific advice should be taken on any individual matter. Transmissions to or from our email system and calls to or from our offices may be monitored and/or recorded for regulatory purposes. Authorised and regulated by the Financial Conduct Authority. Registered office: 302 St Vincent Street, Glasgow, G2 5RZ. A limited liability partnership registered in Scotland, number SO 300336.