The following is a collaborative piece, produced with our financial partners Price Bailey.
Major changes are looming concerning the IR35 employment status regime. But while there is a lot of focus on preparing for the implementation of the new rules in April 2020, the good news is that the vast majority of SMEs will not be affected by the changes – at least, not as hirers.
When IR35 was initially introduced back in 2000, it was up to the “worker” (or more accurately, their personal service company) to determine whether or not they fell within the IR35 criteria. That changed significantly in 2017 for the public sector, with the onus to determine employment status shifting from the workers themselves to the hirer, together with the obligation to settle the tax liability arising if an employment relationship was deemed to exist.
How can businesses prepare?
Those changes are now set to be applied to the private sector in April next year. In practical terms, for medium and large hiring organisations, this means the cost of hiring contractors within the scope of the rules will increase.
However, the Government has confirmed that only medium and large businesses will be affected at this stage – small businesses will not need to determine the status of any off-payroll workers they engage. And the Government has taken the Companies Act 2006 definition of a small company, which means meeting any two of three criteria – turnover of £10.2 million or less, gross assets of £5.1 million or less, and/or 50 or fewer employees.
Given that, according to recent Government statistics, 99% of UK businesses have fewer than 50 employees (and 96% have fewer than ten employees), it’s going to be business as usual for the vast majority of the UK’s 5.6million SMEs – at least when it comes to hiring contractors.
But it’s important to remember that many of the 96% of UK micro-businesses will themselves be contractors. If you or your business falls within this group, the new rules could mean it’s time to reassess your working practices against the IR35 criteria.
Price Bailey is supporting organisations and individuals alike in navigating the 2020 changes. For further information, please contact Sarah Howarth firstname.lastname@example.org.