IR35: April 2020 Private Sector Reform

In April 2017, the government reformed the rules in the public sector to address non-compliance with the off-payroll working rules legislation (commonly known as IR35) and it has since been announced that the government will reform the legislation within the private sector.

Why the need for change?

IR35 rules were first introduced in 2000 however compliance with the rules has not been as high as anticipated. HMRC estimate that only 10% of individuals who should be applying the rules are doing so which it is estimated to cost the Exchequer £1.3bn by 2023/24.

Based on 12 months’ worth of receipts following the public sector reform in April 2017 evidence suggests an estimated £550m of additional income tax and NICs were raised to support the UK’s public services. As a result of increased compliance to the rules following the public sector reform, the government has therefore decided to bring in reform to the private sector.

What are the changes?

As it currently stands, individuals in the private sector who work through their own personal service company (PSC) are responsible for identifying whether IR35 rules apply to them and to pay any tax or NICs due.

From the change next year, the responsibility of determining IR35 status will move from the individual’s PSC to the private authority or agent engaging and paying the worker’s PSC (the “fee-payer”) and they will now be responsible for accounting and paying income tax and NICs to HMRC on behalf of the worker.

Who is affected?

The new legislation will only apply to;

  • medium and large businesses in the private sector that are the end user
  • to the fee-payer (if different), and
  • contractors providing services to medium and large businesses

However, where the end user is a small company (as defined by the Companies Act 2006) they are exempt and therefore the PSC will continue to be responsible for IR35 assessment, minimising the administrative burden for the vast majority of businesses effected by IR35.

When will the change take place?

To allow everyone to prepare for the changes, the new rules will not be introduced until April 2020 and HMRC will provide support and guidance to medium and large organisations ahead of implementation.

There are still areas to be clarified over the coming months ahead of the reform, but if you or your business may be effected by the changes to IR35, please speak to us.

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