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IR35 off-payroll reform – now is the time for action

The Government has announced a review of the IR35 off-payroll tax reforms, making good on Chancellor Sajid Javid’s promise back in November - on the face of it anyway.

Yet, anyone hoping for a delay or repeal of the legislation will be disappointed. The announcement made it clear that the IR35 reforms will go ahead, unaltered, on 6th April 2020.

Cynics have called the review meaningless; an empty gesture simply to fufill a pre-election promise. We’re not going to argue the toss on that, but let’s be clear - if you engage limited company contractors in your supply chain, you need to act now.

What the review announcement said

Rather than changing the underlying legislation, the review will focus on firming up how the reforms are put into effect.

The Treasury statement confirmed:

“The review will determine if any further steps can be taken to ensure the smooth and successful implementation of the reforms, which are due to come into force in April 2020. As part of this, the review will also assess whether any additional support is needed to ensure that the self-employed, who are not in scope of the rules, are not impacted.

Off-payroll working rules, known as IR35, were introduced in 2000 to ensure that someone working like an employee, but through a company, pays similar taxes to other employees.

The reforms, announced in the 2018 Budget, are designed to tackle non-compliance with off-payroll working rules by making medium and large organisations in the private and third sectors responsible for determining the tax status of contractors.

The review will focus on the implementation of these reforms, which are due to come into force on 6 April 2020.”

IR35 - private sector timeline

The off-payroll reforms, which broadly mirror those which were introduced in the public sector in April 2017, are set to be extended to the private sector as planned. This gives a very tight timeline to those who do not already have their preparations well underway:

  • 7th January 2020 - review into off-payroll reforms announced
  • mid-February 2020 - review to conclude
  • 11th March 2020 - Budget 2020
  • 6th April 2020 - changes to come into force

The fundamental shift of the reform is that end-clients will be responsible for determining the IR35 status of contracts undertaken by Personal Service Companies they engage. If a contract is deemed to be inside IR35, it will be the responsibility of the fee payer, the party paying the PSC, to deduct the appropriate PAYE tax and NIC.

What’s changing?
Click here to read the key points of the draft legislation

Some major private sector organisations, including financial heavyweights Barclays and HSBC have already said that they will not be engaging off-payroll contractors going forward, and will instead bring them onto PAYE, with other big corporations likely to follow suit.

The time for action is now!

With less than 3 months to go before the reforms are in force, agencies, hirers and contractors alike need to act now.

If the public sector reforms taught us anything, the only way to prevent disruption come April is to find compliant ways to engage contractors on IR35-caught contracts.

We are on the front line to help you manage this transition. Talk to your Liquid Friday Account Manager, or call the team on 02392 883300.