How to prepare for IR35

Recent decisions by major employers such as Barclays and Lloyds to bring all contractors onto payroll have ruffled feathers in the contractor community. Six months before IR35 legislation is extended to the private sector, do employers face a talent drain or can they still engage with a flexible, self-employed workforce without facing the wrath of HMRC?

 

Contractors in the banking sector will have been mulling over their career options in the past few weeks. Around six months before the IR35 tax legislation comes into effect for private sector companies, a host of banks including Barclays, HSBC and most recently Lloyds have informed contractors that they will only be engaged if you go on the payroll and pay as you earn (PAYE).

For thousands in the freelance community, these demands could mean significantly less take-home pay and reduced flexibility in how they work. The shift has already happened in the public sector. In April 2017, the government amended existing IR35 legislation so that public sector organisations employing contractors working through limited companies – meaning they pay less tax and national insurance – would now be responsible for deciding whether they were inside or outside of IR35.

Genuinely self-employed contractors are deemed to be outside, but if you are considered inside IR35, HMRC expects you (and your employer) to pay the same tax and NI contributions as other, permanent employees.

From April 2020, these rules extend to the private sector – and as recent headlines have shown, a number of organisations have opted to avoid the risk altogether by simply demanding everyone goes on the payroll.

 

Checking status

When it comes to determining status, HMRC advises employers use its CEST tool.

From next April, public, private and third sector employers will be obliged to present contractors with a Status Determination Statement, which clearly outlines and explains the reasons behind the decision to deem the individual outside or inside IR35. As long as employers can show they have taken “reasonable care” to come to the decision and file the appropriate tax documents, says HMRC, they should avoid being penalised.

 

We’re currently working with our legal teams and advisors to ensure we can support our contractors and clients through the transition and help identify whether the roles are inside or outside of IR35. 

Get ahead and check your current employment status now via the HMRC CEST tool. https://www.gov.uk/guidance/check-employment-status-for-tax