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IR35 Update - Private Sector

During the Autumn 2018 Budget, the Chancellor confirmed the Government’s intention to extend IR35 changes into the private sector. These changes will be effective from April 2020, but will only apply to contractors who supply services to large and medium sized end client organisations.

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Current status – private sector

Intermediaries legislation, commonly known as IR35, is designed to ensure that individuals who provide services via an intermediary (such as a personal service company) and who would have been taxed as employees if they had been engaged directly, pay employment tax in a similar way to employees.

Currently, the intermediary is responsible for determining employment status and whether IR35 applies and, if it does, for paying Income Tax and National Insurance contributions through PAYE on the basis that he/she is effectively an employee of the company they are providing services to.

The government believes that the current approach is not working effectively enough and this is why they are proposing change.

Proposed status – private sector

Effective from April 2020, the responsibility for determining whether IR35 applies, and paying Income Tax and National Insurance Contributions will sit with the private sector end client, not the intermediary.

A new consultation will be published by HMRC over the coming weeks and draft legislation is expected during the summer of 2019. This particular time period will provide all relevant parties (including accountants, contractors, recruitment agencies and client organisations) with an opportunity to respond and potentially help shape the new rules.

How will Champion support contractors?

Champion have delivered a dedicated IR35 service to contractors since 2009 - we work hand in hand with our employment law partners, Weightmans LLP, in all aspects of this complex legislation.

Well in advance of the Budget announcement (we had a good idea of what was coming), Champion have been liaising heavily with recruitment agencies and will now seek to work ever more closely with them and their end clients in an effort to help them understand the legal and commercial implications of future change.

We anticipate that we will provide technical guidance to client organisations. We will also assist them to design robust processes that will enable them to prepare for change and ultimately allow them to make accurate IR35 assessments.

Important note – despite the Budget announcement it is important to understand that a contractor who is IR35 compliant today, should still be IR35 compliant after April 2020, assuming their client has met their obligations and responsibilities.

What are the next steps?

Champion will undertake the following actions over the next period of time:

  • Provide a technical response to the new HMRC consultation when released
  • Provide all stakeholders with a detailed overview of draft legislation when released
  • Provide high value technical advice/support to recruitment agencies and client organisations
  • Provide contractors with regular updates and pro-active advice
  • Provide dedicated workshops to contractors, agencies and end clients throughout 2019 and early 2020.

A copy of the Chancellor’s Budget speech can be found HERE.

A copy of the Champion Budget summary can be found HERE.

For more information, please contact a Champion advisor on 0161 703 2549.