The clock is ticking for IR35 – what you need to know
From April 2020, the responsibility for determining worker status is changing – are you ready?
There are just months left to go until the IR35 reform takes place, yet according to a recent survey, more than half do not fully understand the details of IR35 and more than a third are unaware of the reforms. In this week’s blog, we’re looking at what the IR35 reforms are, who they apply to, and how to prepare for 2020.
Want a more detailed view of how to prepare for the IR35 reforms – click here.
What is IR35
IR35 stands for the ‘intermediaries legislation’ – a set of rules that assess whether a worker billing their services through an intermediary is a “disguised employee” for the purposes of tax and NICs. In other words, is the working relationship actually one of employer-employee but being treated otherwise for tax and NICs advantages – also known as off-payroll working.
What changes are taking place in April?
IR35 has been in force for nearly twenty years, however, certain reforms are taking place next year, shifting the responsibility of determining a worker’s status.
From 6 April 2020, all medium and large-sized private end-users are responsible for determining the IR35 status of their workers and then deducting and paying tax and NICs accordingly. This also involves the completion of a Status Determination Statement (SDS) that is issued to the worker and their intermediary.
Currently, this responsibility falls to the intermediary, with the exception of public sector businesses.
Who does this affect?
These changes to the off-payroll working rules largely affect medium and large-sized private businesses, who engage workers through an intermediary. Failure to correctly comply with the rules can lead to them being liable for unpaid tax, unpaid NICs, fines and interest.
However, should this money be unrecoverable from the business itself, the worker and their intermediary will become liable – meaning that these changes affect everyone involved.
How to prepare for IR35 now
With less than four months to go until the reforms take place, it’s necessary to start taking action now to avoid immediately breaching the regulations in April.
Get to grips with CEST
CEST is an HMRC tool that helps to determine a worker’s status by asking a series of questions and generating a decision that HMRC will stand by. This tool has recently been updated, along with its guidance, in readiness for April 2020. Head here to take a look and try it out to see if it’s suitable for your business.
Assess your current working relationships
It’s essential to assess your current working relationships ahead of April 2020 To do this, conduct a data capture exercise to identify any known and hidden contractors working for your business. Once you have identified this workforce, assess their IR35 status using CEST or by speaking to one of our specialist IR35 consultants about a comprehensive and defensible assessment.
Create a risk assessment
It’s crucial to have a plan in place for a situation where one of your most critical contractors can no longer work in the same way because of their IR35 status. Identify your critical workforce, implement mitigation measures and devise a worst-case scenario plan.
When April 2020 arrives, you need procedures in place for:
- Assessing and regularly reviewing IR35 status
- Reshaping your workforce and routes to hire
- Communicating these changes with your current and new contractors.
That’s a lot to do in just a few short months. Omni can help you understand the changes to IR35 and ensure your business is prepared for the changes ahead, speak to one of our expert IR35 consultants today.