IR35 Legislation

IR35 Legislation

Business

IR35 legislation is designed to close a tax loophole whereby individuals avoid paying employee income tax and national insurance contributions by supplying their services through an intermediary (usually a personal service company) and paying themselves in dividends.

Our expert employment law team can help to make sure employers are prepared ahead of time for the legislation changes that come into force in 2020.

What does the legislation say?

Where the legislation is engaged the worker and the intermediary are treated as employee and employer for income tax and national insurance purposes.

How do you determine an individual’s employment status?

This is not just an issue for the individual and the intermediary entity.

Read more

Practical steps

It will no longer be the responsibility of the individual or the personal service company to determine their IR35 status. This will become the responsibility of the recipient of services, provided it is a large or medium sized business (not yet defined).

Medium and large private companies should consider taking steps now to ensure they are fully prepared by 5 April 2020. While some of the detail of the new rules is yet to be determined, companies should consider:

  • Reviewing contractual arrangements with contractors to ensure that they pass the ‘employment’ test summarised above. If they don’t, either amend them (if this reflects the reality of the relationship) or consider appointing the contractor as a direct employee
  • Consider keeping records and asking the contractor to provide evidence that may support contractor status – e.g. records of any substitutes provided
  • Ensure that the contractor’s documentation is in order – in particular is there a contract of employment between the individual and the intermediary?

It is important to ensure preparation is undertaken in good time. If your investigations reveal that a contractor is caught by the new rules, the additional costs and liabilities could be significant.

Contact our specialist employment team here for all of your employment needs.

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