about 1 year ago by Lauren Fonseca

IR35 Hits the Private Sector in 2020

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As expected, the government’s budget announcement in October 2018 has confirmed that private sector companies will be affected by IR35, a tax framework implemented on the public sector over a year ago.

This tax framework is aimed at stopping tax dodging, by ensuring that employees are being classed as such, rather than personal service companies – a tax solution many present-day private sector contractors currently use.

Philip Hammond, the chancellor, is making it the responsibility of medium and large firms (250 employees +) to check the status of contractors and ensure that they should not be classed as employees.

Although this might be a seemingly small change, the framework has had a huge effect on the public sector, as many workers previously classed as contractors have been forced to move onto the payroll of an agency or umbrella company.

Medium and large companies who do not correctly evaluate a worker’s role will be liable to pay potentially large tax fines for their mistake. Criticisms have been made, however, of the online tool HMRC provide to help employers evaluate roles as either within or outside of IR35. Many lobbying groups have spent the past year gathering feedback of the various perceived difficulties of IR35 since its public sector implementation in April 2017. Among those are a strong desire from existing contractors to maintain the freedom that flexible working and shorter term placements allows them.

A spokesperson at EY has said “The measure, at over £1bn, raises more in one year than any other measure in the budget, and it will be important for the government to use the period between now and April 2020 to address the problems that are present in the current scheme that applies to the public sector. Without this, there is a strong risk that the implementation will be problematic and potentially undermine the availability of the UK’s flexible workforce.”

The changes are expected to come into action in April 2020.