IR35 in the Private Sector – 2020

Many contractors are currently being affected by the new ‘IR35’ rules. These new rules, due to take effect from 6 April 2020 (for work carried out after that date), mean that their end client decides whether the worker should effectively be treated as an employee for tax purposes, rather than a freelancer. The rules apply to medium and large sized companies (similar rules are already in place for contractors engaged by public sector companies such as the BBC or NHS). The usual starting point for assessment is the HMRC ‘CEST’ tool – https://www.gov.uk/guidance/check-employment-status-for-tax .

Up to this point, it was the contractor who decided whether the rules applied. Many larger companies are understandably taking the least risky option when the employment status is debatable, so many contractors are having their contracts terminated. Some are being asked to move to an umbrella company arrangement, where the contractor becomes responsible for employee taxes & NI, employer’s National Insurance AND the umbrella company fee. Anyone moving to an umbrella arrangement should try to have their day rate increased accordingly, although many clients won’t agree to this. Some contractors may be offered PAYE jobs, where they will qualify for employment benefits – holiday pay, sick pay and company pension.

It’s important to weigh up all options carefully when there is a choice. We can help with this analysis – please get in touch if this affects you.

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Disclaimer

The above is general guidance only and should not be solely relied upon without consideration of other factors which are too lengthy to go into in this article

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