IR35 Changes

Preparing for IR35 Changes: Are You Ready for April 2020?

What is off-payroll working and what is changing?

IR35 or the “off-payroll working rules” as they are known are intended by HMRC to make individuals who work like employees pay broadly the same (higher) employment taxes as if they were actually employees, even if legally speaking they perform their services as self-employed consultants and as such would pay lower amounts of tax and national insurance contributions (“NIC”). The off-payroll working rules apply where an individual (the “Worker”) provides their services through an intermediary to another person or entity (the “Client”). The intermediary in this case can be another individual, a partnership, an unincorporated association or a company. The most common structure is a personal services company (a “PSC”) owned by the Worker concerned.

In April 2017, the government beefed-up the rules by making public authorities responsible for deciding whether the Worker should be treated as if they were an employee even though they had not been hired directly. This public sector reform also made the public authority or agency Client that pays fees to the Worker’s PSC, responsible for accounting for and paying income tax and NICs under PAYE to HMRC, on behalf of the Worker.

From April, 2020 these IR35 rules will be extended to Workers in the private sector.

What will these rules require?

From April 2020 when the IR35 rules apply, the private sector Client paying fees to the PSC will be treated as the employer for income tax, NICs and Apprenticeship Levy purposes. The fees paid to the PSC will be treated as if they were in fact a payment of the Worker’s employment income when they are paid. The amount treated as the off-payroll Worker’s employment income will be the VAT exclusive amount paid to the worker’s PSC. For income tax, NICs and Apprenticeship Levy purposes, the Worker will be treated as having an employment with the fee-payer. This will require the Client fee-payer to operate the rules for tax, NICs, and the Apprenticeship Levy in the same way as for a normal employee. The off-payroll Worker will be legally required to provide their National Insurance Number, tax code and identity details to enable the right tax to be deducted. On or before the Client fee-payer makes a payment to the worker’s PSC, the Client fee-payer will have to complete the normal Real Time Information (RTI) process and notify HMRC of the amount of the taxable earnings and the tax and NICs deducted.

Will there be exceptions from IR35 working for small Clients?

Yes.  Clients that are classed as “small” organisations will not be affected by the reform and will not need to decide the status of the off-payroll workers they hire and operate IR35. They will need to use the existing statutory definition within the Companies Act to determine whether or not a corporate client is small. This definition is in section 382 of the Companies Act 2006 and provides the Companies Act definition of “qualifying as small”. The qualifying conditions are met by a company in a year in which it satisfies two or more of the following requirements —

  1. Annual Turnover not more than £10.2 million
  2. Balance sheet total not more than £5.1 million
  3. Number of employees not more than 50

The reform will apply to all corporates who do not qualify as small under the test set out in section 382 (including those small companies which are excluded from qualifying as small despite meeting the requirements). Companies in small groups as defined by section 383 of the Companies Act will also qualify as small for the purposes of the April 2020 changes.

Can I avoid the off-payroll working rules by going offshore?

As with the public sector IR35 rules, if the fee-payer is offshore, the liability to operate the IR35 rules moves to the next person in the contractual chain who is in the UK. Where a party in the contractual chain, including the Client is outside the UK but the off-payroll Worker performs services in the UK, fee-payers must still deduct tax and NICs. There are provisions that are intended to prevent the Worker’s PSC from manipulating the labour supply chain in order to avoid IR35.

How can I tell if I will be affected?

HMRC offer an on-line tool called Check for Employment Status for Tax or CEST to help Clients decide if PAYE should be applied to the fees paid to the Worker’s PSC. One of the crucial tests for genuine self-employment status is whether or not the PSC has the right to substitute another worker to fulfil the obligations under the contract between the PSC and the Client.

What are the problems with HMRC’s on-line CEST?

It seems that CEST fails to reflect many previous tax tribunal decisions on whether a Worker is genuinely self-employed or a disguised employee and as such subject to PAYE. Worse still when the information regarding the TV presenter Lorraine Kelly was put into CEST it said that she was really an employee, contrary to the clear decision of the tax tribunal.

Therefore, please be careful when using HMRC’s CEST tool and seek professional legal advice if you are unsure about IR35 off-payroll working and how it will apply in the private sector or could use help drafting the contractual documents.

This article was provided by Patrick Cannon. Patrick advises on and appears in civil and criminal tax disputes with HMRC, challenges to tax avoidance schemes and action against professional and other advisers who mis-sold aggressive tax avoidance schemes now subject to APNs and Follower Notices.


  • Ying Tong says:

    The government has admitted to committing £4.2b of our money so far on Brexit “contingency planning”. In the way of government transparency and accountability it’s likely this is a substantial understatement of the true costs.

    It’s hardly surprising therefore that they’re going to glory on with IR35 changes. Even though these will be ruinous for the sector in the medium term, the government is only concerned with getting through the next year or two. During this time, using the traditional methods of not counting some bits and counting other bits in a funny sort of way, we will hear and see HMRC and the government fabricating news about the successes of the reforms.

    Well I have news for them. In terms the minister will doubtless recognise, they can go away in short jerky movements. They ain’t having it from me.

    • andy says:

      oh dear sounds like the end for Ltd hgv drivers then.I think the driver shortage will go through the roof when this ir35 comes into force .can someone please correct me on this please .

      • Les says:

        I don’t think so, companies with less than £10 million turn over and 50 staff are classed as small, lot’s of them about.

      • Ivaylo says:

        Hi, all i live and work as hgv class 1 driver in uk from 6 years and i have ltd working trough agency and it was 6 years of hard work as i was 5 years international driver,and i think to all this is to mach i stepping down from hgv and uk atall and going back to internacional ivv got full settlement status but THIS DOESNOT FEEDING ME ALLSO HTE LIVE IN COUNTRY IS NIGHTMARE NOW IT WASANT 6 YEARS AGO IAM HI END LEVEL PROFFESIONAL DRIVER WITH 22 YEARS EXPERIANCE have been working in spain belgium france and bg as iam Bulgarian 6 years after my arrival in uk i can NOT recognise the seim country as the cultural difference rise i cant no longer support YOUR country any more 5 years i living with english people and i am happy with them all good my frends but the ENVIRONMENT is HORIFIK AS A BULGARIAN MY CULTURA IS SIMILAR TO CELTIC IF NOT SEEM IF U ARE GOOD OLD ENGLISH U ARE GOOD WELKOM IN MY COUNTRY BUT SORRY I CANT LIVING HIRE ANY LONGER THAT WAS MY HOME :(:(:( I SPEAK ALLSO 35 LENG…S AND MOOVING STRAIGHT TO SPANISH COMPANY AND ITS JUST 1 CALL EVERY BODY NEEDS GOOD EXPERIANCED DRIVERS. WRONG UK DO NOT NEED US ANY MORE.WELL DONE GOOD FOR ME ILL SEE THE SUN AGAIN + I AM NOT EMIGRANT I AM FREE MAN WITH A LOT CUALIFICATIONS AND EUROPEAN YOUR JUISH GOV WANT US OUT NO PLACE FOR CLEVER PEOPLE IN UOYR COUNTRY THEY ARE NOT GOOD SLAVES

  • bravosecurity says:

    I think this post proved that your are my best friend
    Only this post proved that any body is not equal you and your level

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