Changes to IR35 regulations are just around the corner – but are you ready for them?
At Quanta, we’ve been keeping abreast of developments in the legislative changes and how they might impact you
, preparing internally for the changes to take place and ensuring both our clients and contractors are aware of the potential impacts. With political parties promising different amendments to IR35 ahead of the recent election, what can we expect now that the dust has settled and the April deadline edges closer?
We’ve put together some frequently asked questions and answers to help you get to grips with the latest developments.
What do the politicians say?
IR35 was debated during the December election, with different parties proposing different outcomes. While the reinstated Conservative government hasn’t made any changes to the planned April enforcement of the rules, there are still rumblings of discontent from many politicians. Two MPs have recently written to Chancellor of Exchequer Sajid Javid
to ask for an immediate review of IR35, reporting their constituents are worried about the changes. As of early December, the Chancellor had committed to a review of all aspects of self-employment - including IR35 - as promised in the Conservative manifesto, however wouldn’t say whether this would result in a deferred implementation date. As it stands, the review has yet to happen, although the Budget has been set for March 11 so we can expect to see some activity then. That makes now the perfect time to recap on what we already know about IR35 and what we can expect from the upcoming changes:
Why are the changes to IR35 coming into place?
New IR35 regulations are being implemented in order to ensure contractors aren’t working in conditions known as ‘disguised employment’. It’s been reported by HMRC is a large proportion of freelance workers in the UK who do not comply with their tax responsibilities, instead using loopholes in the current IR35 regulations to their advantage. This has resulted in HRMC perceiving the loss of millions of pounds of income tax and national insurance contributions.
What companies will be affected?
One important thing to note about the IR35 changes is that small businesses are exempt from the reforms. To qualify, firms must meet two of the following criteria:
- An annual turnover of less than £10.2 million
- A balance sheet of £5.1 million or less
- 50 employees or fewer
Businesses deemed to be ‘small’ under these guidelines do not need to do anything to prepare at this stage, although they should understand when they will turn from a small business to a medium sized business. They should also inform their contractors and agencies that the IR35 legislation changes will not apply to them. Organisations that do not meet these guidelines and do use freelancers, contractors, interims or consultants should have plans in place for April, including undertaking an audit of current and planned contractors, communicating clearly with these workers and their respective recruitment agencies if applicable, looking into all options such as payroll solutions and seeking legal advice where necessary. The changes have already come into place in the public sector, so it’s just organisations working in the private sector who now need to prepare for April. Quanta are helping clients respond to IR35 changes currently and we are well prepared to assist clients with their preparations.
What about blanket rulings?
As the regulation changes now put the onus on the end client to determine workers’ tax status, we’ve seen some big businesses implement blanket assessments (a term used when a group of contractors are determined as either inside or outside of IR35 without completing an individual determination for each contractor) of all their contractors. Transport for London came under fire for doing this in 2017, when it announced it would impose a blanket ban on workers who were operating under their own limited company. This decision was not well received by workers or the general public, and was soon retracted – however, the damage was already done and many project workers decided to stop working for TfL.
Meanwhile, HSBC have stated it will no longer engage PSC contractors outside IR35, with a number of financial services companies following suit. Organisations should approach the changes on a case-by-case basis to ensure they retain and attract the best talent – and avoid legal issues that may arrive from blanket assessments.
What should I be doing?
We’ll continue to update our contractors and businesses on the latest IR35 news and how they might be impacted. At Quanta, preparations for IR35 are comprehensive and we are happy to provide guidance packs and support, so please get in touch with us
if you’d like to arrange a call with our in-house IR35 specialist.
We also advise contractors to speak to their accountants or other financial advisors to get more advice on the implications of the regulation changes, while organisations should be well underway with their preparations. The proposed review of self-employment in the UK may create further changes, but until then we must all be ready for new rules in a few months’ time.