New IR35 rules means review is required

IR35 legislation came into force in April 2000 to combat tax avoidance by individuals working for a company through an intermediary, such as a limited company, that would otherwise be deemed as an employee if the services were provided directly.

In April 2017, the legislation changed. If the contract falls within the public sector it is the responsibility of the engaging party to determine whether the contract falls within IR35.

If it does the contractor should be included within the payroll and have tax and national insurance deducted and be included on the full payment submission (FPS).

Employers NIC will also be due on payments to the contractor however student loan deductions must not be applied. 

If the contract falls within the private sector it is the responsibility of the intermediary (the Limited Company) to pay over those additional contributions had they been an employee of the engaging party.

In April 2020, the private sector will follow the same guidelines as the public sector, but only for medium and large sized businesses that the contractor works for.

In April 2020, the private sector will follow the same guidelines as the public sector

We recommend if you are a medium or large
sized employer, you should do the following:

  • Review your current workforce to identify those operating via an intermediary
  • Determine if you will continue to use IR35 beyond April 2020 and assess those individuals using the HMRC tool
  • Adjust your company procedures to guarantee IR35 compliancy
  • Review your payroll software to ensure it has the capability to deduct PAYE tax and NIC for a contractor
  • Consider the additional costs that you may incur
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