Last week, the HM Treasury confirmed that the proposed changes to IR35 tax legislation for the private sector will go ahead on 6th April in spite of various groups lobbying for a delay. This comes after a HM Treasury review of the proposed major changes.
However, the Government has made some concessions to soften the impact including announcing that they will apply a ‘light touch approach’ to enforcement in the first year; removing penalties for errors, except in cases where there has been intentional non-compliance.
What are the IR35 rules?
Many contractors put in place a corporate structure (through a personal services company or intermediary) between them and the company to whom they are providing services, in order to prevent a direct contractual link between them and the company, and thus avoid them being classed as an employee or worker.
The IR35 rules, which were rolled out in 2000 to the public sector, mean that someone working like an employee pays similar levels of taxes to workers who are employed. This is due to be extended to the private sector in April 2020.
The rules apply to workers who provide services through an intermediary to a company, and vice versa, a company which receives services from a worker via an intermediary, and also agencies that provide the services of workers/contractors through an intermediary.
Exclusions
HMRC has confirmed that it won’t open any new investigations into these type of corporate structures for any previous tax years prior to April 2020, except if HMRC suspects any criminal behaviour has taken place.
Additionally, the reforms will only apply to payments relating to services provided on or after 6th April 2020.
The rules changes will also not apply to overseas businesses.
Implications
Any organisations or businesses that were hoping that the HM Treasury review would lead to IR35 being scrapped or scaled back will have to face the reality that this is not going to be the case and they should start taking steps now to ensure that they are compliant.
Organisations which have already begun to prepare for IR35 can now be assured that the goalposts have not been moved and that their preparations are necessary for the imminent changes.
How can Nelsons help?
Laura Kearsley is a Partner in our expert Employment Law team.
For further information relating to the changes to IR35 tax legislation, please contact Laura or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.