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IR35 rules have always applied to the public sector since 2017, but they have yet to be implicated within the private sector. These changes, however, are not retrospective. IR35 legislation was initially brought into the UK as a means to tackle tax evasion among contractors. The intention of the law is to ensure individuals who are working like employees but who operate via an intermediary, such as a Personal Service Company (PSC) or third party contracting firm, pay broadly the same tax and National Insurance (NI) contributions as an employee would.
What is the proposed change to IR35?
The reform will put the responsibility for assessing whether IR35 applies onto the private sector user, so the client.
Before, it was the responsibility of the contractor to work this out themselves.
The new rules will only apply to medium and large-sized businesses, meaning smaller companies are exempt.
Where it is concluded by the end client that IR35 applied, the fee payer will become responsible for accounting and paying the related tax and NI contributions, including the additional cost of employers’ NI contributions, to HMRC.
When does new IR35 come into effect?
The proposed changes to IR35 will come into effect on April 6, 2021.
As previously states, Chancellor Rishi Sunak and the Treasury haven’t said there’s another postponement, so it appears the changes are definitely going ahead.
Amendments to the legislation introduced alongside the Finance Bill 2020 require that clients provide an IR35 ‘Status Determination Statement’ (SDS) when assessing the IR35 status of a contractor before a contract officially starts.
An SDS is a comprehensive statement from the client which:
- Declares a contractor’s deemed employment status following an IR35 assessment
- Provides reasons for reaching this conclusion
For contractors expecting to start promptly on April 6 or shortly after, an SDS should have already been given to them in an effort to prepare for the changes.
But according to statistics from IR35 Shield after a survey conducted on 3,000 contractors, results showed 47 percent of assessed contractors weren’t provided with an SDS.
A further 55 percent of this group said clients hadn’t even provided reasons for status determinations, effectively rendering the SDS legally invalid.
This is a huge concern for contractors, who will likely be adversely affected by any delays to the legislation’s implementation.
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CEO of contracting authority ContractorCalculator and IR35 Shield, Dave Chaplin told Express.co.uk: “Off-payroll compliance is crucial for clients to attract contracting talent, but only if it’s done properly.
“Unfortunately, questions remain over some of the practices that are being adopted by firms.”
Referring to the survey results, Mr Chaplin added: “That is a lot of contracted not being treated correctly under the new legislative requirements.
“While firms technically don’t have to do anything until the legislation takes effect on April 6, all that does is breed contempt from the contractors who are seeking certainty on their status, in addition to building up a cliff-face risk for the firm.”
Mr Chaplin said when presented with the choice, many contractors are opting to just move to another company which treats them fairly rather than loitering around for the SDS to be amended.
He concluded: “They will see projects delayed and disrupted as a result of non-compliant and ‘laissez-faire’ approaches to assessing or rather, not assessing, their contingent workforces.
“A firm that takes a strategic and proper approach to its compliance obligations should not fear the legislation and is unlikely to fall victim to any HMRC challenge that may come its way.”
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