1st May 2019
The 6th April 2019 ushered in the start of a new tax year but that doesn’t mean we can afford to sit back and rest. In fact, we are already looking ahead to some of the tax changes which April 2020 will bring; not least of which is the shakeup of the IR35 system.
So what is IR35? In brief, IR35 is tax legislation which was introduced with effect from April 2000 and which was designed to identify and tax appropriately individuals who were effectively employed but providing their services via a service company or other intermediary. Since its inception it is fair to say that IR35 has been the subject of considerable discussion and litigation; with the tax authority’s desire to tax appropriately those individuals who are in ‘disguised employment’ potentially impacting on small businesses.
In April 2017, prompted by HMRC’s belief that IR35 work was being under-identified to a significant extent, the government switched the responsibility for identifying IR35 contracts from the individual to the engaging body. Initially this transfer of responsibility was only in respect of public sector contracts. With effect from April 2020 that scheme is being extended to take in work commissioned by medium and large organisations in the private sector.
As a result, contractors working in this sector will now potentially be vulnerable to decisions made by organisations which will themselves be anxious not be embroiled in a tax investigation. We have already seen from the public sector roll-out how some organisations err on the side of caution by automatically assuming that all, or the majority of, their contractors should be caught by IR35; leaving those who operate genuine small businesses with the burden of proof otherwise.
The key principles underlining what constitutes employment were set down in a 1968 case, Ready Mixed Concrete (South-East) Ltd versus Ministry of Pensions. These look at control, substitution and mutuality of obligation. However subsequent rulings also have an impact on how IR35 is to be interpreted and contractors may well find that they need to take independent advice in order to ensure that their working relationship is correctly interpreted. Failing to do so could lead to tax and national insurance being applied to income as well as the possibility of an investigation in respect of previous tax years.
In order to avoid this outcome Thompson Jenner Partner Paul Lewis strongly recommends that contractors “arrange for a review of contracts and working practices as soon as possible, not only to ensure that contracts reflect actual working conditions but also to demonstrate that reasonable steps have been taken in order to ascertain IR35 status.”
Thompson Jenner LLP are able to provide a comprehensive professional contract review service that will consider both the contractual terms and the working practices, providing a clear unbiased and independent opinion.
If you would also like to take advantage of this valuable service or wish to discuss any IR35 issue, please contact Paul Lewis or one of our Partners on 01392 258553 or 01395 279521 to discuss how we can help in more detail or to arrange a meeting.