IR35 is properly known as the Intermediaries legislation and came into force in April 2000 as part of the Finance Act. It set out details of new legislation relating to intermediaries (including personal service companies or other companies or partnerships). Since then IR35 has been used to determine how an individual working via a personal services company should be taxed. In 2017 IR35 reforms were introduced in the public sector and liability for determining IR35 status moved from the contractor to the party paying the worker- which in most circumstances would be the recruitment agency. The government later announced that they would be extending the IR35 reforms into the private sector. The REC campaigned for a delay to this extension and in the Autumn Budget 2018 the Chancellor announced that he would delay the extension of the payroll rules until 2020.
Further details on the background and application of IR35 can be found in our Legal Guide.
Extension of the off payroll rules: The Government announced at Budget 2019 that it will extend the off payroll rules into the private sector from 6 April 2020 (the off payroll rules were introduced to the public sector in 2017). We will update our guide 'Employment taxes for recruiters' shortly but in the meantime see our IR35 factsheet - part 2, which explains the key points of the consultation including how status decisions should be passed through the supply chain, how to resolve disagreements about status and liability. Government has now published a consultation on the changes in early 2019 and the draft legislation will follow in Summer 2019. We will keep members updated throughout the year including with a series of seminars in the summer 2019. Information on the dates and location of seminars can be found here. We will also be hosting an IR35 webinar on April 2, which members can sign up to here.
Tax avoidance schemes identified by HMRC: HMRC have asked REC to advise its members about a number of schemes used to reduce contractors’ tax and NICs and which HMRC considers do not work. These include paying contractors via loan (see below), annuity and loyalty points for advertising the contractor’s services on a jobs board. HMRC have issued a number of Spotlights to warn contractors against using these schemes. When engaging with any intermediary, members should fully understand the arrangements used to pay those contractors – HMRC has issued guidance on how to identify tax avoidance schemes.
Loan charge: A new loan charge will apply from 6 April 2019. The charge will apply to disguised remuneration loans that are outstanding on 5 April 2019. HMRC is encouraging people in these schemes to come forward and settle their tax affairs before the loan charge applies, as it is likely to be more beneficial for them. For more information see HMRC information on loan schemes and the loan charge.
How should status decisions be passed through the supply chain?
The REC's response to the consultation on off payroll working - a successful campaign which led to the delay in implementation
How to prepare for the 2020 changes
This flowchart will help you decide which contracts to use when supplying limited company contractors in 2020