Changes to IR35 in April 2020 – What you need to know
- Date: Monday 17th February 2020
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What is IR35?
IR35 is the UK legislation that prevents the avoidance of non-payment of tax linked to disguising employees as self-employed. The legislation sets out to determine whether a contractor is for all intents and purposes an employee when they take on work for a client. Some employers may choose to “disguise” that a contractor is actually an employee in order to avoid paying National Insurance contributions and benefits to the contractors (as they would be required to do for an employee).
If a contractor is inside IR35 the HMRC see them as an employee who is responsible for paying income tax and NI. If the contractor does not face these payments, they are deemed outside of IR35.
There are three key principles to determine whether IR35 applies to a contractor as follows:
- Supervision, direction and control – how much say the client has over how the contractor undertakes their work. The greater the level of control the more likely there is an employment relationship and that IR35 applies.
- Substitution – can the contractor send somebody in their place, or do they have to do the work? If the contractor is unable to send a substitute, then IR35 is likely to apply.
- Mutuality of obligation – if there is an obligation from the employer to offer work and an obligation on the contractors to accept then IR35 may apply.
What are the changes?
Today the contractor makes an assessment and determines whether IR35 applies. From 6th April 2020, the end client will be responsible for determining whether or not a contractor falls inside or outside of IR35. This change has been in place for public sector organisations since April 2017.
However, there will be an exemption for small businesses. These exemptions will apply to end clients who meet two or more of the following criteria:
- Annual turnover of no more than £10.2 Million
- Balance sheet of no more than £5.1 Million
- No more than 50 employees
The new rules on IR35 will only apply to contracts that commence after 6th April 2020.
Source: Gavin Parrott