From April 2020, the responsibility for assessing an IR35 status is changing. The responsibility will shift from contractors to the end client (or company).
This change applies to contractors who work with medium and large-sized organisations in the private sector.
The change in legislation excludes engagements with small companies, where contractors will continue to determine their own IR35 status.
This new legislation is designed to increase compliance and does not change the IR35 assessment criteria.
The intention from HMRC is that those who are complying with the existing rules should not be affected, and the measure is targeted at individuals who do not comply with the current rules.
How do these changes affect contractors?
Although the person who is responsible for determining the IR35 status of a contract will change, it is important for contractors to be aware of what will happen and how it will impact them.
From April 2020 the end client must complete a Status Determination Statement for each role and provide it to the contractor with reasons for their decision.
If the status determination results in an outside IR35 decision, the contractor when working through a PSC can chose their own salary and benefit from other things associated with a genuine business engagement, such as claiming for business expenses and receiving dividends from company profit.
If the result is inside IR35, the collection of PAYE and National Insurance will be with the end client or agency supplying the contractor.
For the private sector, the 5% allowance will be removed for those that are deemed to be caught by IR35 in the same way as has been the case for the public sector since April 2017.
Next Steps and planning for contractors
At Gorilla Accounting, as specialist contractor accountants, our advice has always been to make sure that you are IR35 compliant and this is as important now as ever. We would urge contractors to make sure they get a thorough contract review and ensure that your working practices are in line with the contract.
It’s important that you work with your clients and agencies to plan for the changes. If your engagement is outside IR35 currently and continues past April 2020, the only thing that will change with the new rules would be who will determine the IR35 status of an engagement.
Companies will still want to benefit from the specialist expertise of the flexible workforce to deliver their projects and this will not change after April 2020. For more information about the IR35 update, visit our blog ‘IR35 Update & How the Changes Could Affect You‘.