What is IR35?
For the uninitiated, IR35 refers to tax legislation that HMRC created in response to underpayment of tax by self-employed workers operating via personal service companies (PSC) or other intermediate arrangements. In particular, HMRC wanted to ensure that off payroll workers were paying tax on the full amount they were being paid if they were deemed to be a ‘disguised employee’. This is where, if you ‘look through’ the existence of the PSC, the individual would meet the definition of an employee and should have been on the organisation’s payroll and HMRC would be collecting income tax and national insurance contributions (both employee and employer).
The definition of being ‘inside IR35’ and ‘outside IR35’ has always been very vague, but guidelines from HMRC suggested that if you were under the supervision, direction, or control of the organisation you were working with you were deemed inside IR35 and should be paying tax on the gross amount of pay.
In April 2017, HMRC changed the enforcement of IR35 within the public sector and whose responsibility it was for determining IR35 status and any subsequent necessary tax deductions. Under the new rules it became the responsibility for the ‘public body’ and ‘end client’ to determine the IR35 status of the role.
Whilst the definition of what was ‘inside’ and what was ‘outside’ was unchanged, this change of responsibility was significant for those operating as interims and consultants within the public sector and indeed, for the organisations themselves.
The 2018 Autumn Budget confirmed that the proposed reforms to the taxation of PSCs in the private sector (which includes Registered Providers) will be implemented from 6 April 2020. The changes are expected to largely mirror those implemented from April 2017 in the public sector and will apply to large and medium-sized businesses.. This means that from April 2020:
- the responsibility for undertaking employment status assessments could become the responsibility of the entity using the services of the interim
- the responsibility for operating PAYE withholding will be that of the entity paying the PSC.
Whilst the implementation date gives some time to prepare for the changes, work will still need to begin now in order to do so. This will include cost and pricing decisions, how to manage status assessments, the communication process, dispute management, contractual updates/protection and wider governance.
How can we help?
The introduction of the IR35 rules has presented challenges to date where consultants and interims are being used, and these will increase with the changes impacting RPs from 2020. We are experienced in assisting clients in achieving a solution which will best meet your need for a high-calibre interim resource, whilst considering the implications of IR35. Our interim associates offer flexibility, value for money and extensive experience to help address your business needs. Our unique service does not just place an interim within your organisation but ensures that our interims are supported by the wider Altair team.
Further guidance on IR35 can be found at:
HMRC IR35 guidelines www.gov.uk/guidance/ir35-find-out-if-it-applies