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Overview of IR35 Regulation Changes

IR35 advice salford

From April 2020 the rules for engaging individuals through personal service companies (PSCs) are changing. These individuals are described as “off payroll” and the responsibility for determining whether the off-payroll working rules apply will move to the organisation receiving an individual’s services.

So what does the IR35 reform mean for the private sector?

Legislation has been in place since 2000 that seeks to prevent tax advantages from providing service through a limited company for those people who on not really in business for their own account. They are often referred to as “disguised employees” as their actual working practice is similar if not the same as traditional employees.

In 2017 the public sector had new rules implemented in all public sector organisations that made the organisation responsible for deciding the contractors IR35 status instead of the contractor themselves.

If a contractor is deemed to be inside IR35 the organisation must deduct the employees NICs and income tax from their pay and pay employer’s NICs.

In last year’s budget it was announced these same rules would be implemented for the private sector from April 2020. There are significant penalties for making an incorrect statement and a consultation is currently taking place on how best to roll out the plans to avoid the problems that occurred during the public sector implementation.

The changes will not affect small businesses but it is likely to significantly impact a lot of contractors as many work for large private sector companies.

As the details are not yet fully finalised it is not necessary to take action now other than starting your initial planning and keeping an eye on the consultation outcomes. However as many businesses rely heavily on contractors, especially for short term labour, you must consider what arrangements you need to take.

The HMRC Guidance document is available on the gov.uk website by following this link.

For help and assistance on your IR35 status then please contact MCC Accountants and we will be happy to help.

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