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A simplified guide to IR35

A simplified guide to IR35

December 2019 by Michelle Smith

A simplified guide to IR35

There has been much talk over recent months concerning the proposed further changes to IR35 affecting engagements with private sector organisations. If you’re not yet up-to-date with the legislation here’s a quick overview…

What is IR35?
HMRC introduced IR35 in 2000 to tackle what they call ‘disguised’ employment. In 2017 the UK Government made off-payroll working rules (IR35) changes specific to the Public Sector. From April 2020 they plan to roll out similar changes to the Private Sector.

Reforms to IR35 legislation pass the responsibility for determining the tax status of all personal service company (PSC) interim workers to the hiring organisation (with responsibility previously sitting with the worker themselves). This includes the potential liability for tax and national insurance contributions.

IR35 essentially sets the criteria as to whether a contractor is an employee when they take on work for a client. If an interim worker is classified as ‘inside IR35,’ HMRC deems them as an employee and consequently liable for the same income tax and national insurance deductions as a permanent employee.

Does this apply to you?
The legislation in the private sector differs from public as it applies only to those organisations classed as medium or large. HMRC class an organisation as medium or large if they meet at least 2 of the 3 below criteria:

  • Annual turnover in excess of £10.2M

  • Balance sheet total more than £5.1M

  • More than 50 employees

  • If you are classified as a small organisation the legislation d changes do not affect you and the responsibility for IR35 determinations remains with the interim worker.

What this means for organisations
HMRC have provided the following guidance that from April 2020, medium or large-sized private sector organisations:  

  • Must decide the employment status of a worker and must do so for every contract agreed with an agency or worker.

  • Must pass the determination and reasons for it to the worker and the organisation they (the client) contract with (the agency).

  • Must keep detailed records of employment status determinations, including the reasons for the determinations.

  • Must take reasonable care when making a determination about the employment status of a worker.

Must provide a response within 45 days of receiving notification that the worker disagrees with their determination.

How we can help
We work in partnership with our clients and having previously guided countless companies through the 2017 Public Sector IR35 reforms, we are well positioned to navigate the journey with you.

To continue ensuring our clients meet their obligations and achieve a smooth transition we have invested in a solution that will remove risk and liability, provide clear processes, outcomes and communications, save you time and money and ensure full compliance.

In addition, we are also offering a series of free bespoke client workshops to talk you through the changes and providing a detailed guide to the next steps, new requirements and guidance on engaging contractors.

Whether it's creating a clear project plan, providing guidance on best practice and process or reviewing the business impacts and the business opportunities, we can provide consultancy services to prepare you for the upcoming legislative changes. We can also communicate with your existing contractor workforce to help them understand more about how the reforms will impact them.

We are working closely with clients and candidates that may be affected by these changes and will ensure that we keep you informed of any decisions that affect you.

​​​​​​​Get in touch today to find out how we can help you with a smooth, risk free and compliant solution.