Cedar Recruitment interim, Senior Finance Recruitment, IR35 legislation...
HMRC are introducing new IR35 rules for contractors who provide services through a personal limited company. HMRC believe many contractor assignments are, to all intents and purposes, disguised employment.
IR35 rules have existed since 2000 and just in case you are not familiar, you are required to assess the contract, the nature of your work and decide whether your role is disguised employment (Inside IR35) or an independent contracting role (Outside IR35).
If you assess the work as inside IR35, HMRC set out how tax and National Insurance Contributions must be calculated. If you assess yourself as being independent, in business in your own right, you are free to tax yourself in accordance with broader HMRC rules with the consequence of a lower tax liability.
The rules are expected to be similar to those in the public sector, but because the Autumn budget was delayed, they are not public yet. If you have encountered IR35 in the public sector, the April 2020 rules are expected to bring some minor changes, particularly around processes.
It is possible, but unlikely, that the new rules will be delayed further or scrapped altogether, however, we at Cedar believe we should plan ahead and are taking steps to make sure everything is in place.
The new IR35 rules pass responsibility for deciding your tax status to the end user or client.
Unlike the public sector rules, if you are engaged by a small company, as defined by the Companies Act, the new IR35 rules will not apply.
The important thing to remember is that all businesses and contractors will be in a very similar position. There is no need to panic, the regulations will not change the need for businesses to use contractors, something we experienced when the rules were first introduced into the public sector.
Just a reminder, if a client deems a contractor to be outside IR35, then nothing will change.
If a contractor is deemed to be inside IR35, there are a number of routes by which the you can be correctly paid with tax and National Insurance deducted:
- You can transfer to be paid via Cedar’s PAYE payroll
- You can transfer to work through an umbrella company;
- With effect from April you can opt to be paid through your personal limited company, however Cedar will be required to deduct PAYE and National Insurance Contributions from your payments.
Obviously, if you are deemed to be inside IR35, we will work with you and the client to minimise the impact.
If you are deemed to be inside IR35, we would urge you to carefully consider which method of payment you choose, each has different implications. Once the final rules are known, we will provide you more detailed information on your choices and what they mean for you.
So, what will Cedar be doing before April?
- Whilst Cedar recently reviewed it’s contracts, once the legislation is finalised, we will undertake a final review to ensure if the nature of your work is outside the scope of IR35, our contract will not jeopardise that assessment.
- We will be providing our clients with detailed information to enable them to make an accurate assessment of your IR35 status if your assignment is likely to extend beyond March.
- Nearer to April we will be contacting both you and our clients to discuss your assessment, provide a copy for your review and deal with any queries.
So, what should you do before April?
- Briefly document the tasks, outcomes, the nature and scope of your work. Particularly document progress against agreed outcomes and projects, this will provide strong evidence that the nature of your work is that of an independent contractor.