IR 35 – How should employers prepare for these changes in April 2020?

Jane Crosby from Hart Brown Solicitors explains that IR 35 is an important piece of tax legislation affecting employers and how they operate their business.

What is IR35?

IR35 essentially determines who is responsible to pay income tax and National Insurance Contributions (NICs) and will allow the government to collect tax from employers where an individual is operating as an employee in all but name.

IR35 applies primarily to engagements via an individual’s personal service company. These are companies set up by self-employed individuals for their services, so they pay less tax.

The government believed certain self-employed contractors were exploiting the tax system by terminating their employment to create personal service companies and then returning to the same role in a contracted relationship, therefore benefiting from the tax advantages of a company.

The issue for the government is whether an individual is contracted to provide services as an employee or as a self-employed individual. If the person is seen as an employee then they have to pay income tax and National Insurance Contributions in the normal way. If on the facts and the contract the individual is self-employed then IR 35 is applicable.

IR 35 does not change the fundamental recognised tests of how to determine whether an individual is an employee or a self-employed person: such as the level of control a business has on its individuals, the right of an individual to substitute their services, whether an individual has their own insurance and equipment and the control of that person, whether they have the freedom to work elsewhere and determine their method of working.

Many of the high-profile cases like Pimlico Plumbers have sought to revisit these tests and while a contract is important to determine status it will also depend on the facts of the situation.

If a self-employed person contracts through a personal service company, then it is currently for the company to decide if the individual is an employee or not.  If they are an employee, then the personal service company pays the PAYE

What is changing?

With effect from 6 April 2020, the burden of making the decision and operating PAYE, transfers from the individual and their personal services company to the actual business who engages their services. This is why employers need to be aware of these changes.

This could affect intermediary companies who supply workers to businesses because essentially it is the end user who is responsible with the advent of IR35.

How should employers prepare for these changes?

  • carry out a detailed review of how many individuals are affected in the business and review all self-employed contracts;
  • review working practices;
  • update contracts and policies especially if a third party is involved as you may need to move your personnel onto contracts of employment;
  • update policies when recruiting individuals so that there is full disclosure of their status; and
  • seek advice from a specialist who will be able to look at a person’s status in the business and deem whether they need to be signed up on a contract of employment before April 2020.

To speak with Jane directly about this or any other employment-related matter, please email JZC@hartbrown.co.uk or call 01483 887766.

This is not legal advice; it is intended to provide information of general interest about current legal issues.

Share

Jane Crosby

Partner, Dispute Resolution & Accredited Mediator

Jane is an employment and commercial litigation solicitor of more than 15 years' experience. Prior to entering the legal profession, Jane was employed in the...

Partner, Dispute Resolution & Accredited Mediator

Jane Crosby

Jane is an employment and commercial litigation solicitor of more than 15 years' experience.

Prior to entering the legal profession, Jane was employed in the aviation industry. This experience is appreciated by many of Jane's clients who note that she is able to take a commercial and pragmatic approach to any legal issue that they face.

Jane acts for a wide range of individuals and businesses and her areas of specialism include aviation, property related industries and IT. Jane regularly advises on aspects of employment law, such as settlement agreements, employment contracts, policies and procedures, redundancies, equal pay, data protection, issues arising from TUPE and reorganisations, the calculation of holiday pay, bonus and commission payments, disciplinary and grievance issues, dismissal and termination issues, the protection of confidential information and the enforcement of restrictive covenants. Jane gets involved in GDPR training for her clients and she is able to deliver tailored employment law training sessions upon request.

As a commercial litigation lawyer, Jane also deals in shareholder and directors disputes, commercial contract disputes and the enforcement of restrictive covenants.

Jane has been involved in successful high value commercial litigation for clients in the High Courts, she is an accredited mediator and she is a member of the Employment Lawyers Association.

Jane is often asked to write for a number of well known publications, including The Daily Mail, The Telegraph and The Week and she has been interviewed on BBC Radio 4.

Here is small selection of the feedback that Jane has received:

“Jane, I cannot sincerely thank you enough for your wise counsel and am delighted to have made your acquaintance. If I am blessed with a new position somewhere I will hand over my contract in the first instance to you. Likewise, any of my friends, peers, romans and countrymen wanting advice, I will point them in your direction.”

“Jane, you have been most resilient on my behalf for which I sincerely thank you for all your endeavours. I have a tremendous working relationship with Hart Brown and you have undoubtedly compounded this further."

“I appreciated the clarity of advice given at a stressful time”.

“A sensitive and highly professional approach and efficient work in the interests of the client”.

“Your advice, conduct and assistance have been indeed outstanding and very professional but also – and most importantly – very humane”.

Head Office

Resolution House
Riverview
Walnut Tree Close
Guildford
Surrey
GU1 4UX

Your Local Office

Guildford - 01483 887766
Cobham - 01932 576789
Cranleigh - 01483 887515
Godalming - 01483 887766
Woking - 01483 887766

Hart Brown Solicitors is the trading name of Hart Brown LLP registered in England and Wales No. OC 425835 whose registered office is Resolution House, Riverview, Walnut Tree Close, Guildford, GU1 4UX and is authorised and regulated by the Solicitors Regulation Authority (SRA) No. 658593. Members: N Maud, T Pearce, D Knapp, R Campbell and P Grimwood, Partners: D Beswick, J Crosby, L Harrhy, J Jupp, J Lamont, T Mandelli, V McMurtrie, E Moore, S Osborne, S Powell, G Sanders and L Stolworthy.

Any reference to a partner in relation to Hart Brown LLP means a member or an employee with the title of Partner of Hart Brown LLP.

© Copyright Hart Brown LLP 2020 - All Rights Reserved. VAT registration no. 211372705