IR35 Changes: Risk and Responsibility in the Private Sector

The planned changes to the UK’s Inland Revenue 35 (IR35) Laws are intended to create a clear distinction between independent contractors and full-time employees.  By determining employment status, HMRC hopes to ensure that proper tax contributions are obtained.  In order to achieve this, IR35 shifts the responsibility for determining the status of workers and the associated tax risk.

The new rules apply if a worker provides their services to a client through an intermediary but would be classed as an employee if they contracted directly.  From 6 April 2020, all public sector authorities together with medium and large-sized private sector clients will be responsible for deciding if this is the case.  If a worker provides services to a small client in the private sector, the worker’s intermediary will remain responsible for deciding the worker’s employment status.

Who does this apply to?

The bill is still in draft form, though given the April implementation date, it is unlikely we will see drastic changes made to it.  In its IR35 guidance, the government states that some rules already apply to all public sector clients, but from 6 April 2020 medium and large-sized private sector clients also need to apply them. The private sector includes third sector organisations, such as some charities.

Medium and large-sized clients are defined as private sector companies that meet 2 or more of the following conditions:

• you have an annual turnover of more than £10.2 million
• you have a balance sheet total of more than £5.1 million
• you have more than 50 employees

De-risking with PeopleLogik

At Briars, we focus on supporting our private sector clients with their bespoke compliance needs.

As the responsibility for determining a worker’s status now lies with you, the client, additional due diligence will become unavoidable.  This requirement for assessment may raise the temptation to employ off-payroll workers directly.  However, this means assuming a large chunk of risk.  The risk may no longer lie with the workers themselves, but interim services can still take on the liability – You need to choose carefully!

If a contractor were to be incorrectly categorised as falling outside the scope of the off-payroll rules, HMRC would first go to the agency working directly with self-employed contractors to recover any unpaid tax or National Insurance.

However, the draft bill also stipulates that in the event the agency is unable to pay, HMRC can seek any unpaid taxes from the end client, meaning organisations cannot completely outsource their IR35 risk to recruiters.

Compliance-driven risk protection

Organisations may not be able to completely outsource risk, but they are still free to de-risk as much as possible within the regulations.  The higher quality the intermediary service, the more risk can be mitigated.  With many years’ experience in the provision of secondment services, PeopleLogik is well-placed to deliver this solution to you. A solid intermediary service such as PeopleLogik not only takes on liability for you but is supported by the Briars Group tax team’s 25 years of experience.

PeopleLogik is an established service that actively monitors risk and focuses on compliance. We employ staff directly and fulfil all the duties of a UK employer.  We also provide PeopleLogik services in other countries

For more information on PeopleLogik please contact us here.