In April 2017 public sector organisations became responsible for IR35 compliance. Without the resources to ‘test’ every supplier, some organisations, in many cases unfairly, placed a blanket IR35 determination on all their PSC contractors. By putting all of them inside IR35, they mitigated their exposure to risk, but alienated their contractors, who saw their earnings drop significantly.
In April of 2020 this will be extended to the private sector. Whilst many do not expect the private sector to react in the same way as the public sector, it is inevitable that some assessments made by end user clients will be at odds with the contractor’s assessment. Private sector businesses that make use of freelancers and contractors should already be putting in place procedures for assessment of workers and setting out appeal procedures. If, as a freelancer, you haven’t heard anything from your end client yet, now is the time to start the conversation. The end user client is required to provide a “Status Determination Statement” which details the rationale behind their decision. In the event of worker disagreement a review is required with 45 days.
It is important to remember that IR35 itself hasn’t changed. So, if you are correctly assessing yourself as outside IR35 now, then you should have little to be concerned about.
For those that are deemed to be working within IR35 but are currently working through a limited company arrangement then that arrangement can continue. Payments to the limited company will however be subject to income tax and national insurance deductions and the salary cost recorded in the company accounts will be equivalent to its income. The alternative is to use an umbrella company.
Small businesses are excluded from taking responsibility for the IR35 assessment. “Small” is defined in the Companies Act:
During a 12-month period, a business is deemed to be a ‘small’ company if it meets 2 or more of the following criteria:
- Turnover – not more than £10.2 million
- Balance sheet total – not more than 5.1 million
- Number of employees – no more than 50
If you would like to discuss how an umbrella solution might work for you please contact us