If you’re up-to-date on your HMRC news, you may already be aware that there has been the possibility of changes coming to IR35 legislation for a while.
These changes will be coming into effect on 6 April 2017. Read on to see how they could affect you as a contractor.
What is IR35?
If you’ve never heard of IR35, it is a piece of tax legislation that determines the employment status of a contractor or freelancer.
Introduced in 2000, IR35 differentiates authentic contractors working through an intermediary from workers using an intermediary when they are being treated as an employee by the end client, but acting as a contractor for tax avoidance reasons. The latter would be described as a ‘disguised employee’.
What contractors need to know
Currently, it is the responsibility of the intermediary to decide if IR35 legislation applies to the contractor and to calculate the amount of income tax and National Insurance Contributions (NICs) the contractor will pay to HMRC.
However, from 6 April 2017, for those contracting within the public sector, it will become the responsibility of the end client to determine IR35 status and to deduct income tax and NICs from the contractor’s pay.
What this means for contractors
As a contractor, there are a number of repercussions this may have on how you trade and interact with payees.
Most notably, it may mean that you could struggle to find work as a contractor in the public sector. This change to IR35 could mean businesses in the public sector are less inclined to take on work from contractors for fear or IR35.
This change to legislation will also mean that contractors may have a slightly different relationship to the intermediary, although this would be a minor change.
It will also be your responsibility to ensure you are not within IR35, not just the fee-paying third party’s. If you suspect you may be working inside IR35 and the third party has not brought this up, you should discuss it with an accountant. They will be able to best advise you on how to proceed.
Are you concerned by the confirmed IR35 changes? Leave your thoughts in the comments below.