An overhaul of IR35 tax rules for contractors in the private sector comes into force from 6 April 2020 when off-payroll working is extended to medium and large businesses, and LLPs.
Overhaul of IR35
As from 6th April 2020 the rules for off-payroll working will be extended to the private sector. This will bring contractors into income tax and National Insurance contributions for the first time. Before the overhaul these workers paid the Income tax and National insurance outside of the PAYE system.
Concerns over IR35
A common issue raised over the course of the review has been businesses’ concerns over what payments the rules apply to and from when. The government has listened and taken action early to give businesses certainty and more time to prepare to ensure the smooth and successful implementation of the reforms that come into force in April.
HMRC have released information to say that the rules, also known as IR35, will now apply only to payments made for services provided on or after 6 April 2020. Previously, the rules would have applied to any payments made on or after 6 April 2020, regardless of when the services were carried out. It means organisations will only need to determine whether the rules apply for contracts they plan to continue beyond 6 April 2020, supporting businesses as they prepare.
The off-payroll working rules have been in place since 2000. They are designed to make sure that an individual who works like an employee, but through their own limited company, pays broadly the same Income Tax and National Insurance contributions as those who are employed directly.
The government is extending the 2017 reform of the operation of the rules in the public sector to all medium and large organisations in April 2020. This will shift responsibility for operating the rules to the organisation that engages the worker. This is how employment status for tax is decided for the vast majority of people, who do not work through their own company.
For further advice on how IR35 could affect your business contact AJR & Co.Ltd