With the consultation on IR35 reform within the private sector now complete, there is a strong possibility that the Autumn Budget will announce the changes. This means that reforms could be introduced as early as April 2019.
Now is the time that businesses must ensure that they are fully educated on IR35 legislation and understand the impact that these changes will have on their business, should they be introduced. Agencies will ultimately be liable for any missing tax incurred from an incorrect IR35 decision, therefore our team here at Exchequer have been taking the time to support our agency partners, as they build their knowledge of IR35.
Below we take a look at some of the main points for agencies to consider as the possibility of an IR35 reform looms.
Issues following reforms to the public sector
Mistakes made following IR35 in the public sector can act as a guide to agencies and organisations on what not to do should reforms be extended into the private sector. A number of issues arose as a result of the changes, with many organisations and businesses wrongly blanket assessing the contractors they work with. This ultimately meant many contractors were put under the incorrect status, and therefore many organisations are now being taken to tribunal by said contractors, in order to recoup lost income.
The impact of an IR35 decision
Whether a contractor is deemed inside or outside of IR35 there will be an impact to both the contractor and agency alike. These impacts are not something an agency can avoid, as the legislation must be complied with, but it is something that they should be aware of and prepare for.
Inside of IR35
Contractors found to be inside of IR35 legislation will see their pay reduced by up to 40%, and the agency may run the risk of being taken to a tribunal in the future, should the contractor believe the wrong decision was made. In addition to this, agencies will also be responsible for the administration of deemed payments, something which few accounting systems have the ability to process.
Outside of IR35
Identifying that a contactor is outside of IR35 often leads to a much happier contractor due to the fact that they can continue to operate as normal. However, agencies must also ensure that all paperwork between contractor and agency, as well as client and agency, reflects the fact that the contractor is outside of IR35 and in line with Mutuality of Obligation (MOO), substitution and control.
Ultimately, we want to stress the importance of having sufficient knowledge and understanding of IR35 and how it will impact upon the processes of a business when working with PSCs. We will continue to track the progress of these proposed reforms over the coming months. If you would like to keep up to date please follow us on Twitter and LinkedIn.
Looking for further guidance with IR35? Speak to our IR35 experts today to discover how we can support your agency.