Who will be affected by the IR35 changes?
The changes to IR35 will affect contractors and recruiters. If you are a recruitment agency, a contractor working through a Personal Service Company or a large or medium-sized end client, pay attention as you will be affected by the changes.
Small businesses will be exempt from these changes, as defined by the following criteria:
- Annual turnover of no more than £10.2m
- Balance sheet total of no more than £5.1m
- No more than 50 employees
What are the key IR35 changes?
Most of the changes are designed to bring the IR35 rules of the private sector in line with the public sector, with the key difference that small businesses in the private sector will be exempt whereas small businesses in the public sector do come under the IR35 legislation.
One of the key changes is that the end-client will now be responsible for determining the IR35 status of any contract with a Personal Service Company. The given end-client must provide a ‘Status Determination Statement’ in writing to the PSC worker, which must also be provided to any agency that is involved in paying the PSC.
Another responsibility of the end-client, as laid out by the new IR35 rule changes, is organising arrangements for considering any disputes from PSCs about the SDS. There will be a 45-day limit for a written response to the PSC with a provided outcome of the dispute review.
Crucially, the legislation will also affect the employment tax liabilities, so that it is the organisation responsible for issuing the SDS that will then be responsible for any arising tax liabilities. This means that HMRC can and will recover tax from the highest party involved in the labour supply and this is designed to ensure compliance across organisations and supply chains.
Finally, the new IR35 legislation has scrapped the 5% allowance for PSC budgets for administering off-payroll working rules. Again, this will only apply to large and medium end-clients so will not affect small businesses.