IR35 was introduced by HMRC in 2000 to reduce tax avoidance by people who work in a similar way to full-time employees but instead, they bill their time via an intermediary which will usually be the worker’s own company. There are many self-employed people in the UK who are working within the rules, however, some companies set employees up in this way to eliminate additional costs such as Employer’s national insurance.
HMRC are changing the IR35 rules on 6th April 2020 to further reduce tax avoidance from medium and large private companies.
Prior to April 2020, workers had the responsibility to decide their own employment status. From April 2020, it will now be the responsibility of the employing company to decide the workers employment status. Therefore, if HMRC were to decide that a worker is incorrectly labelled as ‘self-employed’, the company will be liable to any potential penalties.
Companies are classified as ‘medium sized’ if they do not exceed two out of the following three criteria in the current and preceding year:
· Balance sheet total: £18m
· Medium business income: £36m
· Average employees during the financial year: 250
The rules are not changing for workers who are providing services to a small client in the private sector. If the worker does not receive a status determination from the client, they should determine whether the off-payroll working rules apply.
For further information about IR35 and PAYE rules, please contact Geoff Campbell on firstname.lastname@example.org or call 01573 225082.