What’s New with IR35 in 2019?
Changes to the way IR35 is calculated for private companies are still set to be rolled out in 2020. Here’s what you can do to prepare.
Contractors are not in a happy place according to recent research. Confidence took its biggest hit for two years in the fourth quarter as freelancers felt the twin assault of contractor taxation and the looming spectre of Brexit. Part of the reason for this downbeat mood appears to be the upcoming extension of the IR35 changes already implemented in the public sector to the private.
What do IR35 changes mean?
The Government has been trying to crack down on so-called disguised employment since 2000 when the Intermediaries Legislation (IR35) first reared its head. This was intended to address the issue people claiming to provide services to companies as a limited company who were not really in business for themselves. This theoretically has benefits both for the employee who can use various tax advantages of working as a limited company and the employer who can avoid its obligations as an employer.
Unfortunately, despite several changes over the years, the Government still feels it is not making the progress it hoped for. In last year’s budget, Chancellor Philip Hammond announced that changes to IR35 which had already taken effect in the public sector would also apply to the private.
These changes would place responsibility on the engaging company to assess IR35 eligibility for all its contractors. It will, hopes the Chancellor, net the Government an additional £1.3bn per year by 2023/24 making it the budget’s biggest revenue raiser, but there has been plenty of opposition.
A rough ride
The implementation of IR35 for the public sector was bumpy and although HMRC claims it has learned its lessons, there are signs that trouble could lie ahead. Most recently, its voluntary tool for checking IR35 status, CEST, came in for criticism after a freedom of information request uncovered just a single page about its testing.
That page, according to tests from ContractCalculator also raised further concerns. They ran the cases contained in the document and found what they describe as ‘wild inaccuracies’. In terms of confidence in the process, therefore, things could be much better.
There is, then, likely to be plenty of uncertainty as the rules draw closer. Many people may find themselves impacted by IR35 who perhaps shouldn’t be. You should seek help from professionals to make sure you are not being wrongly classified under 1R35.
This, then, is one of the main reasons why contractor confidence is taking a hit and the news that these rules will be postponed until 2020 will provide only a little consolation. They will see many people being forced onto payroll and paying more tax, but worse than that is the fear that the rules will create confusion in the minds of employers which could hit legitimate businesses.
As well as imposing higher demands on employers to check the IR35 status of contractors it also imposes hefty fines for those who are found to fail to comply and it is this which is causing the greatest concern.
As this article from the Guardian shows, contractors have already been forced to give up lucrative projects because of uncertainty around IR35. The article follows a contractor who had to give up on an HS2 contractor thanks to IR35 rules for the public sector. Now, with the news that it was likely to be rolled out to the private sector, he was seriously considering the prospect of liquidation.
How to survive the changes
Dire predictions such as these, though, are nothing new. Contractors are no strangers to regulatory assault and just as with the introduction of IR35 back in 2000, contractors and engaging companies can and will adapt, but they will need to lay the groundwork early.
Both can take some solace in the news that these regulations will not come into force until 2020 which means, for now, contractors will need to continue managing their own IR35 details, but if it does look as if you will fall under the scope of IR35, the time to prepare is now.
Professional IR35 reviews will help to give contractors a good idea of where they stand and will also help to provide reassurance to anxious engaging companies. A lack of confidence in the CEST tool creates continuing uncertainty and without proper guidance, engaging companies may choose to err on the side of caution. If you can provide a clear indication of your IR35 status, they will be much more comfortable to proceed.
Those companies who find themselves under the scope of IR35 changes will also have to adapt their processes. The chances are this will increase the burden on HR teams and require additional investment in IT infrastructure. While uncertainty persists about the guidance from HMRC they will also need to invest in guidance from experts.
The new changes, then, have not been welcomed with open arms by many people. Opposition continues and the Government faces many calls to scrap or change their approach. They may well do so, but a government with £1.3bn of additional revenue in its sights will take some persuading. Early preparation, then, will be important. It can put all processes in place and enable you to have a clear idea about whether you need to change the way you work to avoid falling afoul of IR35.