Businesses and contractors must begin their preparations for IR35, says Watson Buckle
One of Bradford’s leading accountancy firms, Watson Buckle, is calling on businesses and the contractors and consultants they employ to start preparing for a major tax rule change next year.
The off-payroll rules, commonly known as IR35, are due to be extended to the private sector from April 2020 – having already sparked controversy in the public sector where they have already been implemented.
The introduction of the rules will have immediate ramifications for those contracted through personal service companies (PSCs) and other contingent individuals, such as contractors and consultants, as well as the businesses that employ their services.
Employers will be responsible for identifying those who should be subject to the rules and must provide a statement to this effect.
If they fail to do this those businesses could become liable to their contractors’ employment costs. Those found to be within the remit of IR35 will have to pay income tax and National Insurance Contributions (NICs) via the businesses PAYE system.
This change will also require employers to pay their own NICs as well, which could lead to significant costs for those businesses with a high number of contractors and consultants.
Meanwhile, those contingent workers affected by it could lose a number of tax benefits and will see the way in which they report income change drastically.
In most cases these individuals have previously self-reported their income via a tax return, but if they are caught within the rules, they will find that income and other benefits and expenses are reported by their employer instead. This could mean that they have to pay tax directly through the PAYE system and it could even lead to them being taxed more in some instances.
Where a person is brought within the new tax regime, they will be able to challenge their determination with the person who hires them and uses their services. HM Revenue & Customs insists that the rule change will not affect those who are genuinely self-employed.
“It is thought that almost a quarter of the UK’s workforce now works on a contingent basis, either in the public or private sector,” said John Kinsella, Tax Director at Watson Buckle.
“It is vital that companies that employ the services of contractors and freelancers start to reviewing their existing workforce to determine which employees are most likely to be affected so that they can issue the necessary statements and to make sure that their systems and internal processes are ready for the rule change.
“These onerous changes are likely to lead to a considerable increase in employment costs and it is more than likely that many contractors and consultants on independent contracts might start making requests to increase their rates or for a full-time role, if they have to start paying NI contributions.
“This is something that businesses must take into consideration during their preparations for IR35.”
If you are concerned about the upcoming changes to IR35 and would like help with your preparations, please visit www.watsonbuckle.co.uk