IR35 in the private sector – where do we currently stand with the changes?
We’re starting to get asked more “what is going to happen from April 2020?”… Now that the draft legislation has been issued, we can start to make you aware of the facts based on where we currently stand.
What’s all the fuss about?
So, for those of you who aren‘t aware, from 6 April 2020, IR35 in the private sector is going to change. The factors determining if you are inside or outside of IR35 are not changing, but the ‘new legislation’ changes who determines the IR35 status. As it currently stands, you as the contractor determine your own IR35 status. From April 2020, the decision of whether each engagement falls within IR35 is going to fall on the end client. This isn’t entirely new, as this already came into effect in the public sector from 6th April 2017.
The draft legislation which has recently been issued, does however give some further clarity on things to come, and we’ve included some key points to be aware of.
Firstly, if you are deemed inside of IR35 by your end client, this is going to change the way in which you receive payment. Currently you receive the gross amount before any tax deductions into your Limited company. The new rules from April 2020, require that either end client or third party agency that pays your invoices, deducts the necessary PAYE (as if you were an employee) from your gross invoice first before this is paid to your company bank account.
In order to determine your status from April 2020, the end client must produce a ‘Status Determination Sheet’. This is going to be a written statement that confirms the end clients’ decision on your IR35 status, along with their process on how they have come to this conclusion. One problem that was identified when this came in for the public sector, is that some organisations such as TFL and the NHS were not looking at contractors individually and had determined them all with the same status (referred to as a blanket approach in the consultation). The draft legislation however, has made it clear that end clients are to take reasonable care to make sure each contractor is reviewed based on their individual working conditions.
The end client must then pass the determination on to all parties involved; as the contractor you will get a copy of this. If you disagree with the determination, the appeal process needs to be done directly with the end client. There is no further guidance yet on a formal process for this, however the end client will have 45 days to respond to your appeal. If there are other third parties such as agencies, if they pay your invoices they too will be made aware of the determination so they can apply the necessary taxes.
These new rules will only apply, if you are working with a medium or large end client. If you are working for a small end client, then it will be ‘business as usual’ as the rules are not changing. A small company is based on if two of the following can be satisfied:
a. Turnover of no more than £10.2 million
b. Balance sheet total of no more than £5.1 million
c. No more than 50 employees
So, what next?
Right now, for you it is business as usual. But you need to be aware of the upcoming changes, especially for new contracts and contract renewals, as you may start to see that the end client will determine if these are inside or outside of IR35.
If you start to see status determination sheets where you disagree with the decision made by the end client, we strongly advise that you go back to the end client as soon as possible to discuss this. Even though currently the process for appeal has not yet been made clear, we will assist and support you where possible to reach a conclusion.
We would like to hope that after this coming into the public sector in 2017, that due to the issues at the time which led to contractors walking out that most private sector end clients will adopt a more thought out approach. However, there has been a number of articles recently, including HSBC who have made in clear that they do have plans to reduce their contractors, where on the other hand RBS have said the opposite in which they will work alongside contractors to help them point outside of IR35, if this is reflected in their working conditions.
What if you are inside IR35?
We have noticed that some agencies and end clients started pushing contractors inside IR35, suggesting to clients that they are not able to do this through their existing limited company and instead should be using an umbrella company.
It is important to know that you can still use your Ltd company and it may still be the best way of operating even if you are inside IR35 in the new rules as a subsequent contract may not be.
But just in case, for all Aardvark clients, we have partnered up with our sister company SG Umbrella to offer a free umbrella service. So, should you need to go down the umbrella route, then as part of our monthly accountancy packages, we will be including for free the ability to switch between limited and umbrella for your contracts if needed, without any hassle.
As always, ‘we’re all ears‘ so, if you have any questions please don’t hesitate to contact us on 01425 471917, however as we start to see any further firm plans being issued we will let you know.