The way that people work has changed significantly over the past decades: there has been a significant increase in self-employment and even faster growth in the number of owner-managers.
Although the Government values the input of flexible workers to the UK economy, it has highlighted that individuals who work in a similar way should pay broadly the same amount of tax. In light of the above, the government introduced in 2000 the off-payroll working rules, known as IR35. Such rule was put in place to ensure that someone working like an employee, but through a company, pays similar levels of tax to other employees.
Unfortunately, non-compliance with I35 is widespread. As a response for the non-compliance in April 2017 the Government changed the way in which the rules operate in the public sector by shifting the responsibility for determining employment status from an individual contractor to the organisation engaging them. The April 2020 reform extends this change to medium and large organisations in the private and third sectors. The Government has confirmed in its response to the IR35 review that the changes will come into force on 6 April 2020. Please find below some key facts to note from the government’s report:
Except when deliberate non-compliance; penalties for errors related to IR35 will be dealt by HMRC with a light touch approach in the first year;
Unless there is a reasonable suspicion of criminal activity or fraud, HMRC has reaffirmed that information resultant from the IR35 changes will not be used to open inquiries into personal service companies (PSCs) for tax years before 6 April 2020;
The new rules will not be applicable for organisations with no UK presence and that are wholly overseas but note that this aspect relates to the location of the client and that therefore moving the PSC offshore will not avoid the application of IR35;
Educational and support to companies and contractors will continue to be provided by HMRC to assist them comply with the new rules; and