IR35 – what do the new regulations mean for employers and contractors?

With the new IR35 regulations (or “off-payroll working rules”) coming into effect from 6th April 2020, Bespoke Careers London hosted two informative evenings to help our clients and Limited Company contractors working within the architecture & design industry prepare for the legislative changes. 

So what is IR35?

IR35 is a tax legislation that impacts contractors who are working for a client through their own intermediary, often a personal service company (PSC) but would be an employee if they were providing their services directly. Often referred to as off-payroll workers, they are paid through their own intermediary, paying Income Tax and National Insurance contributions in a different way to an employee. The IR35 rules are in place to make sure that where an individual would’ve been an employee if they were providing their services directly, they pay broadly the same tax and NICs as an employee. 

For Employers:

On 11th November, Employment Lawyer Melanie Stancliffe from Cripps Pemberton Greenish joined us in Clerkenwell-based Space and Icons to discuss what the IR35 changes mean for firms that employ contractors. Mel discussed; when IR35 applies, the impact it has on all medium and large-sized private sector organisations (certain small companies are exempt) and the process of creating a status determination statement. 

Top tips for employers:

• Audit your contract workers;
• Identify who will implement the new rules and make determinations;
• Consider whether you want to employ staff;
• Review the wording of your contracts;
• Make the SDS assessment;
• Use processes to review your employment law risks in relation to contractors.

For Limited Company Contractors:

To assist our contractors, we enlisted umbrella company Parasol / First Freelance to join us on 19th November in providing an overview about the rules that currently apply to the private sector, a summary of the draft legislations and tools to help support contractors through the IR35 transition.

Key pointers for contractors:

• Fee payer responsibility: the party who pays the PSC is treated as the employer for tax purposes;
• 5% expenses allowance: the fee payer must deduct PAYE Tax and NI deductions on 100% of the contract income. There will no longer be a 5% expenses allowance;
• Status Determination Statement: a Status Determination Statement (SDS) must be provided to the worker and the fee payer;
• Statutory client-led disagreement process: If the worker or fee payer disagrees with the SDS they can make representations to the client – who has 45 days to let the worker or fee payer know that the decision is final or provide a revised SDS;
• Improvements to CEST tool: HMRC are making amends to the CEST tool and an improved version will be available soon for use;
• Debt Transfer provisions: The draft legislation introduces a new power for HMRC to collect unpaid PAYE from other parties in the supply chain.

Despite the potential upheaval to the contracting industry and the imminent general election, it looks like the IR35 tax reforms are likely to go ahead regardless of who is in power from December 13th.  All employers and limited company contractors are advised to start preparing themselves for the legislative changes to ensure as smooth a transition as possible. 

To view some photos from the evening please click here.