What you need to know about April 2020 changes to IR35 rules

Most of us have heard of IR35 and if you're a contractor or are self-employed, you need to prepare for further tax changes relating to this rule, which are coming into force in April 2020.

Previously, only those working for public sector organisations were affected, but now HMRC is extending the IR35 rules to medium and large businesses, who for the first time must determine if a contract falls within IR35.

Third parties, such as agencies, placing staff into medium or large companies, are also liable and both they and the 'end client' must ensure 'Status Determination Statements' are issued to the worker.

Small businesses are still exempt from the IR35 rules, so if you're a contractor considering working for a company, you may want to check it is classed as a small business, with turnover up to £10.2 million, a balance sheet total of no more than £5.1 million and with no more than 50 employees.

Be a contractor not an employee

To stay outside IR35 rules, self-employed contract workers are usually paid on a project-by-project basis, which is usually when work reaches a specific milestone or comes to an end.

Having a website, an office and employees all go in favour of showing that you're operating as a self-employed contractor and not working as an employee.

Contractors must have control over how they complete their work for a contract to fall outside of IR35. If a client provides you with equipment to complete a contract, this could result in HMRC viewing you as an employee. Whenever you're at the pre-agreement stages of a contract, always make it clear that you'll be using your own equipment, to remain outside of IR35.

Multiple clients

Remember to have at least more than one client because if HMRC deem that you're working exclusively for one client over a prolonged period of time, they could view this as an employee-employer relationship, meaning you fall within IR35.

How to calculate IR35 payment

If it's deemed that IR35 does apply to your contract, you'll be responsible for paying the outstanding extra income tax and National Insurance contributions. Bear in mind that HMRC can go back at least six years to determine whether or not IR35 applies to any previous work you've carried out and can request you to pay any necessary additional penalties and interest.

You can take the HMRC IR35 test to assess your current work practices. If you would like further advice on IR35 and minimising your tax costs please contact me, Dermot Kennedy on the number below.

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