Harvey Nash IR35 Update – For Contractors

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Posting date: 06 December 2019

Our latest IR35 update

The proposed changes to IR35 in the Private Sector are set to bring with them significant change to the contractor/ client dynamic. As with most taxes, this has been greeted with resistance from all parties involved. As with any period of change, however, the revised IR35 legislation brings opportunity to those who are prepared.

While the cancellation of the Autumn statement and the impending General Election have kept us in a state of wait, at Harvey Nash our position is that businesses and contractors must assume the revised IR35 will come into effect in April 2020 and begin preparations, if they have not already done so.

Please be assured that we are working very hard to engage with all contractors and clients, providing them with the most up-to-date information surrounding IR35, to ensure we all successfully navigate the forthcoming changes.

To that effect, Harvey Nash has developed this short factsheet, providing contractors with a concise overview of the relevant facts surrounding IR35 and useful resources to help determine their status and the best course of action ahead of the April deadline.

Background

  • With the exception of placements in the Public Sector, it has been the responsibility of each contractor or their Personal Service Company (PSC) to decide their own tax status in relation to IR35.
  • The new “off-payroll working in the private sector” places responsibility for deciding if the IR35 rules apply on the end user (the “Client”) where the PSC is on assignment.
  • The Client must therefore inform Harvey Nash if each engagement is “inside” or “outside” of IR35 ensuring that it takes ‘reasonable care’ when doing so.
  • HMRC recently released an updated version of its electronic tool to conduct a test to support decisions - click here to find out more.
  • Details regarding the rules and changes can be found at https://www.gov.uk/topic/business-tax/ir35.
  • HMRC state in their latest factsheet ‘We estimate that two thirds of people working through a company are genuinely self-employed and not affected by these rules.

What does this mean for Contractors?

‘Inside’ Determination

Where the role is ‘inside’ IR35, and the legislation applies, the ‘Fee Payer’ (Harvey Nash) is required to:

  • account for employment tax and Class 1 NICs due from payments made to the worker’s PSC
  • deduct those taxes from the payment to the worker’s PSC
  • report the taxes deducted to HM Revenue and Customs (HMRC) through Real Time Information (RTI)

Therefore, unless otherwise agreed, it is Harvey Nash company policy that all contractors in an ‘Inside’ role provide services via a HMRC compliant umbrella company from our approved list, who will employ the contractor and make all relevant deductions and account for the relevant taxes.

‘Outside’ Determination

Where the Client has determined the role is ‘Outside’ of IR35, the Contractor can decide whether they wish to provide services via an umbrella company (from Harvey Nash’s PSL) or use a PSC, and payments will be made gross by Harvey Nash to the chosen solution.

What the Contractor can do:

Contractors should consider whether their current role could be seen as being within the scope of IR35. If the Contractor is unable to provide a substitute, does not have autonomy over the delivery of the services, does not take financial risk or is subject the supervision, direction or control of the Client, then it likely that the role would be considered as inside IR35 for tax purposes and fall within the IR35 rules. For the avoidance of doubt the above is not exhaustive and only some of the examples of employment status, other criteria may/will be taken into consideration. Please visit the HMRC website via the link provided above.

Summary

The government’s response to comments on the draft legislation for the off-payroll rules coming into force on 6 April 2020 has been put on hold but it doesn’t mean we shouldn’t prepare. If we all work together, we can manage this change as best as possible. Harvey Nash will be working with Clients to confirm their approach for these changes and the likely determinations for each placement. Harvey Nash will contact each contractor as soon as possible regarding their engagement via Harvey Nash.

These changes will not affect any contractors currently supplying services on a PAYE basis or via an umbrella company.

If you have any questions relating to the revised IR35 changes, please get in touch with your HN representative or contact our compliance team – compliance@harveynash.com.

If you require any further information please contact us at https://www.harveynash.co.uk/general-query-form.