After many years of dithering and sabre rattling HMRC finally started to enforce the off-payroll working rules (commonly known as IR35) for the public sector in 2017. Now those same rules are about to be applied to medium sized and large businesses from April 2020.
IR35 was introduced in 1999 initially to curb the proliferation of “personal service” limited companies in the IT sector. There were many tax benefits for an IT contractor providing his services through a limited company rather than being an employee.
Fast forward nearly 20 years of failure to enforce the legislation and numerous threats by HMRC, the end of the personal service company may well be nigh.
The off-payroll working rules faced more scrutiny after the arrival of the latest IR35 consultation, as the Government asked for feedback from contractors, recruitment agencies and contractors’ clients – all of whom will be affected by next year’s tax changes.
Previously, contractors were obliged to decide for themselves whether they were caught by the IR35 legislation. HMRC tried to “help” the contractor decide with various online tools, which were all skewed to including the contractor in the legislation.
From April 2020, the responsibility for setting IR35 status will be passed from contractors and their personal service companies to the medium and large private sector companies that engage these workers.
The consultation document included a series of questions posed to stakeholders, along with information on HMRC’s specific plans for IR35 reform, which will be introduced on 6 April 2020.
While nothing has as yet been confirmed, the assumption is that “fee payers” will carry the liability in the private sector.
The consultation advised that companies meeting HMRC’s definition of “small” will not be affected. This means that – for the time being anyway – contractors working directly for “small” companies or placed into these businesses by agencies will continue setting their own IR35 status.
Overall, the IR35 consultation confirmed – as expected – that private sector changes look like they will be very similar to public sector reform. It seems there may be a few small tweaks, but HMRC hasn’t been particularly imaginative despite promising to review the true impact of public sector reform.