What is it?
Put simply, IR35 is tax legislation designed to combat tax evasion by workers and the businesses hiring them. More specifically, those workers supplying their services to clients via an intermediary – often known as “umbrella companies” – where they would be seen as employees were that intermediary not to be used.
Why is this happening now?
There has been a trend in recent years for organisations to lean towards creating more flexible workforces. In order to achieve this, many businesses are hiring contractors rather than traditional employees. Although they may work with long-term contracts in the office, they technically handle their own tax payments, holidays, sick pay etc.
What IR35 is now saying is that, these workforces are using their contractor status to allow them to pay less tax when realistically they should be deemed as full employees of the company. Specifically these workers are called “Disguised Workers” and the government suspects they may well make up around 30% of contractors.
Currently in the UK there are almost 2 million full-time contractors who must now check whether or not they are falling foul of these new tax regulations. Needless to say, the potential increased tax revenue for the government and the impact on the current contractor workforce could be significant.
When are the changes coming in?
The changes deciding whether a contract complies with the IR35 rules or not will be coming into force in April 2020. As of yet, many companies haven’t done any planning or research as to whether this new legislation will affect them. Financial compliance can be a real headache if you suddenly find yourself on the wrong side of legislation with letters and heavy fines quickly piling up.
What should I do?
Something to remember in these early days however is just how scattered and haphazard HMRC are with their letters and notices. As such, if you do receive a letter it may simply be part of a wide campaign launched by HMRC and won’t necessarily mean that you are in trouble or being investigated.
That being said, the arrival of a letter from HMRC is always a nerve-wracking moment. Something that can help you to alleviate this stress is by being pro-active and ensuring you have nothing to worry about. It’s important not to ignore these letters, so if you do receive communication from HMRC, contact our team at Moulds & Co immediately who will be able to help you decipher the letter and give you advice on your next steps.