IR35 changes were introduced in the public sector from 2017. A similar process is being rolled out for private sector organisations. Does it impact on your organisation and do you have processes in place?
The Reason for IR35 changes
Historically, an individual may have worked as a contractor or interim for an extended period and invoiced the organisation for their time each month rather than being on the payroll.
As a result, their payment for services was not subject to PAYE rules and no income tax or national insurance was deducted.
The new rules seek to overcome that loophole in those situations where the bulk of the income of the person providing the service comes from one organisation. The technical term is that they are “deemed employees”
Companies acquiring the services of a contractor or interim will have to determine whether individuals are “deemed employees” rather than the service provider as was the case historically.
If they are of the view that contractors or interims are “deemed employees” they will have to comply with PAYE regulations and make deductions in the same way as if they were employed.
The new regulations only apply to companies that are not SMEs.
However, companies that meet at least two of the following criteria would not be able to use the SME opt-out:
- an annual turnover of £10.2m
- a group balance sheet of £5.1m
- over 50 group employees on an average, full-time equivalent basis.
Like all change in regulation, there are going to be “grey areas”. However, as a minimum:
- Review your employee population
- Determine if there are contractors or interims working in the organisation who are currently invoicing for their services
- Engage with those contractors or interims (especially if they are business-critical)
- Start to put in place arrangements to deal with contractors or interims in the future.
Need Help in Addressing This Issue?
We have a team of experts within West & Berry who can advise on the potential implications for your business. Please get in touch to set up a no obligation consultation with us.