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IR35: what it means for private contractors

by Iain Mason

Published on 2nd November 2018

We were among those who predicted that the Chancellor would use the Budget to announce an introduction of IR35 to the private sector, and he didn’t disappoint.Contractors will be affected by IR35 rules for the private sector

IR35 is the government’s anti-avoidance tax legislation, designed to ensure contractors operating through their own personal service company (PSC), and who are generally paid via an intermediary, are re-categorised so their income is taxed through PAYE.

HMRC calls it “disguised employment”, and IR35 legislation has already been introduced in the public sector. However, from April 2020, IR35 will also apply to contractors in the private sector working for medium and larger companies. These are likely to be companies meeting two out of these three criteria: turnover over £10m, more than 50 employees, balance sheet value over £5m.

Who is affected by IR35 for the private sector?

If you’re a contractor working through your own PSC, from April 2020 you WILL be affected. This is a revenue-raising exercise by HMRC, which puts the onus on the intermediary to determine the employment status of each contractor.

Get it wrong and the risk lies with the intermediary, so their default position is likely to be the safest option, namely to place contractors inside IR35. This is the worst result possible for contractors and good guidance will be needed to ensure the new rules are not forced on contractors unnecessarily.

If you’re a contractor, or an intermediary company – such as an employment agency – and you need advice on preparing for this significant change, please get in touch with the team here at Optimum Professional Services.

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