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Tuesday, February 25, 2020

Will the new IR35 off-payroll working rules affect you or your business?


With HMRC releasing a raft of updated information regarding changes to the Off-Payroll Working rules, otherwise known as IR35, which are due to come into force in April 2020, businesses and contractors will be questioning what these changes will mean for them.


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Tax preparation expert and managing director of DSR Tax Claims Ltd, David Redfern, explains the fundamental changes, including the shift in responsibility for determining employment status, which will come into force on 6th April 2020 and what they will mean to your working practices.


IR35, now referred to as Off-Payroll Working, was initially introduced in April 2000 to clamp down on contractors abusing employment law in order to cut down on their tax and National Insurance liabilities by falsely claiming self-employment through the use of their own limited companies while allowing employers to cut down on their employer National Insurance liabilities.

Initially limited to contractors working on contracts with public authorities, the scope of IR35 legislation has been expanded to take into account medium to large sized private companies.

Redfern explained “In terms of determining whether your company is within the scope of a medium to large company for IR35 purposes, HMRC suggests using what it terms the “simplified test” of whether your company has an annual turnover of £10.2 million or more.

However, there are a number of instances where you can’t use the simplified test – if you are an unregistered company, an overseas company of limited liability partnership.

However, if this applies and you do have a turnover greater than £10.2 million and either a balance sheet total of £5.1 million or more or more than 50 employees then you must still apply IR35 rules when using services from a worker via an intermediary”.

Private sector companies which do not meet these conditions will be unaffected by the forthcoming changes.


From 6th April 2020, the responsibility for determining the employment status of a worker will change hands. Prior to this date, the responsibility for checking whether the worker should be treated as an employee was with the worker’s intermediary, such as their agency or private service company (PSC) if the worker was contracted to the private sector.

The recent change means that for all workers, except those working for small companies within the private sector, the responsibility for determining employment status will rest with the client rather than the worker. Redfern stated “The shift in responsibility for determination means that clients, those who are utilising contractors, will have a number of additional responsibilities.

Not only must you pass employment status determination for each contract agreed with the worker or their intermediary, you must also keep detailed records of why you have reached that determination and pass those reasons to the worker. However, because some of your determinations may prove to be contentious, you must ensure that you have a disputes process in place for those workers who disagree with your reasoning. If your company is classed as a small, private company, the responsibility remains with the worker’s intermediary”.


Clients will be expected to take reasonable care to ensure that they determine workers’ employment status correctly, despite controversies surrounding the accuracy of HMRC’s CEST (Check Employment Status for Tax) service. Redfern stated “HMRC’s updated regulations state that where companies have not taken reasonable care to determine a worker’s status correctly, they will become responsible for the worker’s tax and National Insurance liabilities so it is vital for companies using contractors to have a thorough understanding of the measures used by HMRC to determine whether a worker is deemed to be employed or self-employed for tax purposes. Unfortunately CEST is a crude tool at present and there are numerous questions with regard to the validity of the results it produces so the better understanding your company has, the better its chances of staying within IR35 rules”.


From 6th April 2020 these changes to Off-Payroll Working rules will apply to workers who provide services through an intermediary to both public authorities and medium to large private sector companies. It may also impact on clients receiving those services and agencies who provide workers’ services through an intermediary. Intermediaries include personal service companies (PSC), partnerships and manager service companies.

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