Private Sector IR35 Reforms – how will it affect Contractors providing their services via their own Limited Company?
The UK Government has announced that the IR35 reform introduced into the Public Sector in 2017 will also be rolled out to the Private Sector from April 2020.
What is IR35?
As a Limited Company Contractor, you will be aware that HMRC introduced the ‘Intermediaries Legislation’ that became known as ‘IR35’ in 2000. The legislation was introduced to combat ‘disguised employees’. This refers to an individual who would be treated as an employee were it not for the fact that they provide their services via their own Limited Company. Contractors working via Limited Companies are not liable to pay National Insurance Contributions on income taken as dividends, resulting in far less tax to the Treasury. As a result of this, IR35 exists to ensure that those working in this manner pay the tax they should.
What impact will the Reforms have?
In practice this will mean the IR35 status of all Contractors for a specific assignment will be determined by the Client, not the Contractor moving forward. If a Client determines that a Limited Company Contractor is ‘in-scope’ of IR35, then the Contractor will be liable for increased Tax and National Insurance Contributions.
To assist Clients with making the IR35 determination, they will need to use the HMRC digital tool - Check Employment Status for Tax (CEST). There is a series of questions about the levels if supervision, direction and control provided by the Client, which when completed, will give a binding determination of whether the assignment will be inside or outside the scope of IR35. Whilst the tool is already available, HMRC have recognised that it needs modifying to improve the accuracy of determinations.
What will be the role of the Recruitment Agency?
The Recruitment Agency will be responsible for applying the Client’s determination. If this determination is that the Limited Company Contractor is ‘in-scope’, the Agency will be required to deduct Income Tax and National Insurance at source, exactly as if the Contractor was an employee.
It should be noted that your employment status as a Contractor will not change – you will not become an employee of either of the Client or the Agency. A Contractor will be able to appeal any determination made by a Client. HMRC have stated that the new rules will not be applied retrospectively.
What is NES Global Talent doing?
NES Global Talent has been working closely with its Trade Body the Association Professional Staffing Companies (APSCo) over the last year to ensure HMRC listened to the concerns of the Recruitment Profession, Limited Company Contractors and Clients. We also lobbied strongly for HMRC to implement the changes over a sensible time frame and address the concerns of all stakeholders. NES has also modified its payroll systems in order that it can deduct Income Tax and National Insurance as required, and we have amended our contractual documentation to reflect the new arrangements.
NES will continue to support both our Contractors and Clients to implement the new processes required and help both navigate the changes that will be necessary. We expect the new legislation to be published by the Government in late 2019. For Contractors, NES will continue to provide updates in preparation for the implementation of the legislation in April 2020 when further information is released by HMRC. Rest assured, Compliance and Customer Focus is at the heart of what NES does and we will be there to support you.