Thanks to new laws that will transform the private sector in 2020, IR35 has become a buzzword for today’s contractors and recruitment companies. That’s because the new laws will impact the legal status of contractors that work for other businesses.
So, what has really changed when it comes to the regulations set forth by IR35?
During the Chancellor’s pro-budget speech in 1999, Inland Revenue 35 (more commonly known as IR35) was announced and published in the press release bearing the same name. In April 2000, IR35 was officially announced during the discussion of the Finance Act. The purpose of IR35 was to create regulations for income tax and guidelines to intercept National Insurance (NI) avoidance manoeuvres that were common among contractors, partnerships and limited companies.
Before IR35, UK workers from diverse industries that did business as limited companies enjoyed the tax benefits afforded to them as limited companies while working as employees for other companies. Therefore, they did not have to make the same National Insurance contributions that employees had to make. In short, these workers were able to act as “disguised employees,” people who hold positions as employees without having the tax obligations of an employee.
Public Sector IR35 reforms
The original IR35 law stated that it was the contractor’s obligation to identify themselves as a contractor, and any missing tax obligations would be the contractor’s responsibility if the contractor was undergoing an audit initiated by HMRC. A review undertaken by HMRC revealed that a third of the UK’s contractors were using the wrong IR35 status.
Following the introduction of the IR35 public sector reforms in April 2017, many public sector contractors were identified as operating within IR35. The responsibility to identify a contractor as inside or outside of IR35 shifted from the contractor to the recruitment agency binging about the changes we are now seeing in public sector contracting.
The Private Sector’s Upcoming IR35 Reforms
From April 2020 the IR35 reforms public sector will be introduced into the private sector. This will mean that the responsibility for determining the status of contractors will now be the responsibility of the end client. The changes will affect contractors, agencies and end clients alike and it’s important that each level of the supply chain is prepare well in advance of April 2020.
At Rubicon Pay we are experts in IR35 and can help you prepare for the changes IR35 will bring. For more information about IR35 and how Rubicon Pay can help click here.