Anne Rose is Head of Tax at Burgis & Bullock:
The planned reform of off-payroll working rules, more commonly known as IR35, has been hitting headlines again recently.
MPs voted against an amendment to delay the reforms, which have already been put back 12 months, for at least another two years – this decision came against significant opposition. The new rules will now be introduced in April 2021.
Those opposing the amendment to the Finance Bill believe that introducing these changes in these times will only pile on further pressure for businesses that are already struggling due to the Covid-19 pandemic.
It will see rule changes for individuals working through a personal service company, who instead of paying regular personal income choose to pay dividends.
It will see every medium and large private sector business responsible for setting the tax status of any contract worker.
The IR35 was introduced as a tax avoidance rule and this amendment will finally see IR35 achieve what it set out to do 20 years ago.
The individual who works through a personal service company always had an obligation to look at each of their engagements and assess whether what they were doing was similar to that of an employee.
But very few people ever did this and HMRC were unable to effectively challenge this. This change to legislation will now put the responsibility with the medium and large businesses that are contracting the work, rather than the workers themselves.
It will put a lot of pressure on those companies, more paperwork and a need for decisions and processes to be implemented – right at a time of serious disruption following the pandemic.
By the time we reach April 2021, many of these companies will still be trying to rebuild and there are calls for an extra delay as it will only further complicate the jobs market. It could even lead these businesses to say they won’t engage people through service companies.
It has to be a worry for the individuals too. Suddenly people who will be affected by this legislation are less marketable and employable.
It’s important to remember that people don’t just work through personal service companies for tax benefits, for many it is the protection that working through a company brings.
The truth is that this area has needed reform for some time, and the Government needs to recoup money in any way possible after the mass Covid-19 financial support. However, some individuals working through their personal service company will feel particularly aggrieved that the change is going ahead as planned as in many cases this group of workers have so far received little or no support through the Covid crisis.
In the long-term, the amendment to IR35 may lead to less people working through personal service companies – however those that need the protection of limited company status are unlikely to move away from the model.
But how can businesses prepare for this? It’s crucial to understand that self-employed and contractor can mean different things.
You need to look at each individual and assess how you engage with them, doing this sooner rather than later will allow you to discover the size of the problem and analyse where it will be an issue come April 2021.
It is certainly more difficult to plan for this now than it was this time last year, when companies could easily forecast how many of these people they would be engaging with.
At the very least you should have it at the front of your mind if taking on new engagements through a service company.
Contact Burgis & Bullock today for guidance on how to prepare for the changes to IR35 and to find out more about how it will impact your business