If you are a medium or large business that relies on freelancers or contractors in any part of your operation, don’t leave it too late to tackle the thorny issue of off pay-roll workers.
New regulations, which represent a change to what is known as ‘IR35’, were unveiled by the chancellor in his 2018 Budget having operated in the public sector since 2016. They are now on their way to the private sector, with a planned start in April 2020 for all other than small businesses.
Any medium or large organisation engaging with consultants, contractors or freelancers must decide if income tax, employee NICs and employer NICs should be deducted at source depending on that individual’s ‘employment status’. Based on certain factors, the person, or people, may need to be regarded as an ‘employee’ – unless a business can change the relationship to avoid this.
There is a non-exhaustive list from which a business can start to determine what the ‘employment status’ of a contractor is and how it is likely to be viewed by HMRC or indeed in the legal or accountancy arenas – to this end, leading regional accountancy firm Forrester Boyd is already taking steps to inform clients.
It is critical that, by next spring, businesses make a clear separation between those people who are directly employed by them and have the protection of employment rights, and those who are contractors or freelancers and as a result are not entrenched into the business in the same way.
HMRC will require those businesses which fall foul of the new regulations to pay income tax and employee and employer NICs on behalf of the contractor as if the contractor was employed by the business. The burden of risk for compliance purposes therefore shifts from the contractor to the business that engages them. If HMRC carries out an investigation and discovers that a business has failed to comply with the new legislation for a number of different contractors it would then have to make multiple payments, which could be substantial.
For more advice on this vital issue, please contact Richard Parnell on 01472 246647 or visit wilkinchapman.co.uk