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02-03-2020

IR35 – are you ready for 6th April 2020?

IR35 – designed to assess whether a contractor is genuine or a “hidden” employee for tax purposes – is currently highly topical as the rules that have been in force in the public sector since 2017 will apply to the private sector from 6th April 2020.

There has been some confusion , with media reports showing high profile personalities ‘losing IR 35 tax tribunal case’ such as TV presenter Eamonn Holmes (see https://bit.ly/2PyA7YF) to former financial secretary to the Treasury, David Gauke, saying ‘IR35 won’t be watered down’ (see https://bit.ly/39kkRGA), and now comments that ‘Government confirms ‘light touch’ tax rollout’ (see https://bit.ly/2T57F2T).

We hear alarming news of businesses removing their contractors, outsourcing abroad and projects about to come to a standstill…

Before panic sets in, whether you are an employer, contractor, recruitment agency or umbrella company it is important that you are clear whether the rules apply to you or not, and what you need to do next.

IR35 rules will apply if a business meets 2 or more of the following conditions:
– turnover above £10.2m
– employing more than 50 people
– balance sheet above £5.1m.

If you run a small business, you can probably relax.

In general, a contractor should be fully independent, have a right of substitution and does not work under the client’s direct supervision. It is well worth taking the CEST test on HMRC’s website to check where you stand – as an employer or a contractor – see https://bit.ly/385bmtK.

The changes mean businesses will now have to assess if a contractor (whether engaged as an individual or through a personal service company) would be an employee if they had been directly engaged. If so, it is the business that will liable to pay tax and NIC’s to the HMRC. This a reversal of the current situation where the contractor assesses and accounts to the HMRC.

There are also implications under Employment law with contractors acquiring new statutory rights (e.g. holiday and sick pay, minimum wage, pension, unfair dismissal, etc)

If you are unsure and need guidance do not hesitate to contact our Commercial and Employment Law Partner, Raj Dhokia, at r.dhokia@fgdlaw.co.uk or on 020 7625 6003.