17 Jul 2019

IR35: Does it affect you?

IR35 Article 120323057 1

An upcoming change in tax legislation could lead to a significant impact on your business. Keep reading to find out if this could affect you.

The legislation will impact on any business which is defined as being “not small”. The definition of a small company is given in the Companies Act; in short if you’re required to have an audit then this legislation will apply to you. For groups the position is a bit more complicated so if you’re a member of a group you will need this to be looked into in a bit more detail.

For unincorporated businesses, such as a partnership, the definition is straightforward; if your turnover is above £10.2m in a calendar year then you’re not small.

Currently, if individuals provide services to your business through their own limited company, they are responsible for determining whether they should pay taxes as an employee under the IR35 legislation. With the change in tax legislation, this will become your responsibility. You will have to determine the employment status of anyone that provides services to your business. Factors such as: whether they are self-employed; are operating through a limited company; or, whether you use an agency or not; will no longer be relevant.

The legislation will require you to consider the employment status of every worker who isn’t on your payroll unless they only receive money under another entities payroll, such as an “umbrella company”.

If you use an agency for your workers, you may well not know whether the workers have their own limited companies, or are paid through an umbrella company. You will need to find out as you’ll still be subject to the legislation.

If you deem workers to be employees, they will need PAYE and employee’s NI deducted from monies paid to them, and you will have to pay employer’s NI. In addition, the worker is likely to be unhappy with that decision due to the additional taxes, and they may seek to increase their rates, or seek work elsewhere.

If you decide that a worker isn’t an employee then, should HMRC disagree at a later date, you will be responsible for paying over all the PAYE and NI that should have been deducted at the outset, together with interest and probable penalties.

It isn’t, therefore, a decision to be taken lightly.

Although the changes aren’t set to come into effect until April 2020, some initial thought needs to be put into this now. This is especially true if you have a large number of people providing services who are not on your payroll, or if they are on longer contracts of, say, 6 months or more.

The legislation requires that each individual has a separate review of their position so, as you can imagine, this could involve a lot of work. We anticipate that we will be assisting a lot of clients with this over the coming months, so would urge you to look at this promptly to ensure useful advice can be provided in a reasonable time-frame.

Please contact Sam Dale to discuss this further.