IR35 Rules for Private Sector

IR35 governs the tax status of people working through personal service companies (PSCs) and until recently only affected public sector employees; determining whether contractors working for them should be taxed as employees.

From April 2020, the same rules will apply to bodies in the private sector.

The rules are intended to ensure that individuals who are working in the same manner as employees are paying roughly the same employment taxes as those that are classed as employees.

Off-payroll working rules only apply when an individual provides their services through an intermediary to the client or individual.

HM Revenue & Customs (HMRC) refers to workers in this category as “disguised employees” because they do not meet their definition of self-employment, and as a result, the correct figures for tax and National Insurance (NI) are not paid.

Contractors and those who work in a freelance capacity often fall under these descriptions.

What will the reforms mean for private sector employers?

From 6 April 2020, the responsibility for assessing whether IR35 applies will shift from the individual to the end client, recruitment agency or another third party engaging with the worker.”

Businesses will be able to use the Check Employment Status for Tax (CEST) service, which helps to determine whether the off-payroll working rules apply. However, HMRC has been forced to admit that this tool is only accurate in around 85 per cent of cases, so seek additional help from the payroll team at Smailes Goldie if you are in any doubt.

There are key considerations for businesses when determining the status of an employee. These include how the worker is paid, if they are directly receiving any benefits or expenses, what their responsibilities are and who controls them (where do they work, when, how).

It is important to note that these rules will only apply to medium and large businesses.

Workers in small businesses will be exempt, meaning that they will continue under the current system, with the responsibility for determining IR35 remaining with workers.