Following the introduction of IR35 reforms in the public sector in 2017, HMRC has confirmed that the new rules will now be extended into the private sector, including recruitment agencies, effective 6th April 2020.
Here's what you need to know:
IR35 – Off-payroll working rules
HMRC introduced IR35 in 1999. Tens of thousands of self-employed workers are facing a higher tax bill as HMRC tightens the net on IR35 – a complicated piece of legislation designed to crack down on a tax loophole used by self-employed individuals operating through a company.
In April 2020, many more workers will come under the umbrella of IR35. It means self-employed people who work for a company like an employee may have to pay the same level of tax that permanent members of staff pay. The changes will bring in £3.1bn in additional tax revenues between 2020 and 2024, according to HMRC.
IR35 working rules
• apply if a worker provides their services through a limited company, but would be classed as an employee if they were contracted directly
• make sure that workers providing services through a limited company pay broadly the same tax and National Insurance contributions as an employee
From 6 April 2020 agencies will be affected by changes to how the rules are applied.
The intermediary legislation applies to personal service companies and will be treated as employees for tax purposes from April 2020 if the below criteria is met. Any evidence of deliberate non-compliance will be associated with higher penalties.
1. If the end client has not or would not agree to the worker’s business arranging for a paid substitute to work instead of them, it suggests that they are being engaged on a personal service basis.
2. If the end client has a right of control, this would suggest the working practices are similar to those of an employee.
3. Workers who do not risk their own money by, for example, buying assets, or paying for overheads and materials are more likely to be employed for tax purposes.
4. Workers who receive benefits, have line management responsibilities for other people and represent themselves as working for the end client are more likely to be employed for tax purposes.
What the changes mean
From 6 April 2020, medium and large-sized private sector clients receiving services from a worker will be responsible for:
• making an employment status decision to decide if the rules apply
• telling the worker, and agency or other labour providers they contract with their decision, with reasons for making the determination
The conditions about size only apply to clients. If you are a small-sized fee-payer you will still be responsible for applying off-payroll working rules.
Benefits of becoming a PAYE Employee
Equal working and employment conditions
Equal access to facilities and permanent employment
You also have the same rights as your permanent colleagues to use any shared facilities and services provided by your employer, for example:
a canteen or food and drinks machines
a workplace creche or mother and baby room
car parking or transport services, like a local pick-up service or transport between sites
Rights after 12 weeks
After 12 weeks in the job, you qualify for the same rights as someone employed directly. This is known as ‘equal treatment’.
Your rights include:
‘equal pay’ - the same pay as a permanent colleague doing the same job
automatic pension enrolment
paid annual leave
How to count your 12 week period
Start counting your 12 week qualifying period from your first day at work.
You don’t have to be at work for 12 weeks in a row - some types of leave count and there can be breaks.
Don’t count days on sick leave or a break
The qualifying period will pause for sick leave or breaks. Don’t count the days when:
you take a break of 6 weeks or less
you’re on leave due to sickness or injury for up to 28 weeks
you take annual leave you’re entitled to
the workplace closes, for example for Christmas or industrial action
you’re on jury service for up to 28 weeks
Count time off for pregnancy, paternity or adoption
Your 12 week qualifying period will continue through time off you have for:
pregnancy and up to 26 weeks after childbirth
If your leave is more than 12 weeks you’ll qualify for equal treatment when you return to work.