The IR35 rules are not new and most people who work as a contractor via a Personal Service Company (PSC) are familiar with this legislation, however from April 2020 there will be a change which is expected to have a huge impact on the contracting sector.
To recap, IR35 was intended to deal with the problem of those who were employees in all but name, i.e. they had gone ‘off payroll’ in order to save tax and NI by trading through a PSC. Employers will have seen benefits too by saving employer’s NI, removing the burden of PAYE admin and avoiding employment rights.
Currently the worker decides if their contract is caught by IR35. There are a number of tests to follow and often working practices and a contract review are sufficient evidence for those outside of the legislation.
From April 2020, it will be the end client making the IR35 assessment.
There are rumours that banks and other medium and large engagers could take a blanket approach and pull all contractors into IR35. This means that tax and national insurance will be applied resulting in a significant drop in the contractor’s net take home pay.
The rules state that the end client will need to assess each contractor individually using HMRC’s online Check Employment Status Tool (CEST) and provide them with a Status Determination Statement (SDS). The problem is that CEST won’t be updated until the end of the year and therefore these assessments cannot truly begin until January 2020. This leaves many people in limbo until the New Year.
Points to consider:
- The changes don’t impact ‘Small Business’ (less than £10.2 million annual turnover or less than £5.1 million balance or less than 50 employees).
- Even if the end client is deemed a Small Business, if there is an intermediary in place, such as a national recruitment agency, then you may still be affected.
- Use the time now to review your contracts and working practices with your end client to establish if they will consider you caught by IR35 from April 2020.
- Consider negotiating a higher rate, to compensate the reduction in net take home pay.
- Establish if your end client would consider offering you a PAYE contract instead (the benefit of this includes paid holiday pay, sick pay, maternity / paternity pay, pension contributions and other employment rights).
- Review your industry sector to seek new contract opportunities with a ‘Small Business.
It’s good to talk
Prior to a4c, Esther spent many years working within the recruitment industry, specifically working with contractors. She has an indepth understanding of the PSC market and would be happy to book a call if you wanted to discuss your specific circumstances.
Feel free to make contact to schedule a telephone meeting.