Survey reveals continued IR35 concerns for UK businesses

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26 November, 2020

HMRC introduced the 'off-payroll working rules', commonly referred to as the 'IR35 rules' in 2000, to tackle situations where some contractors took advantage of the tax efficiencies of providing their services through their limited company or another type of intermediary, when in practice they essentially worked as an employee. As such, the IR35 rules apply if the contractor would be an employee if there was no intermediary. Where the IR35 rules apply, a contractor will be 'inside IR35' and like an employee, they will face an income tax and National Insurance contribution burdens. Those 'outside IR35' do not face this.

Changes to the IR35 rules

The changes to the IR35 rules mean that the responsibility for determining whether the IR35 rules will apply move to medium and large businesses in the private sector receiving a contractor's services. A business will be exempt from the IR35 rule changes if two or more of the following criteria are satisfied:

  • Its annual turnover is not more than £10.2 million;
  • Its balance sheet total is not more than £5.1 million; and/or
  • Its number of employees is not more than 50.

Such changes were due to come into effect on 6 April 2020 however, due to the Coronavirus pandemic, the changes will not be implemented until 6 April 2021.

If a business fails to undertake a determination when required, or if a determination is undertaken when required, but the business fails to exercise reasonable care or is purposefully deceitful in determining the IR35 tax status, such business could face HMRC investigation, significant fines and legal proceedings.

Survey by Ranstand*

In November 2020, recruitment firm Randstad conducted a survey of 204 medium and large UK construction businesses in respect of the forthcoming IR35 rule changes.

It is concerning that amongst the results, 26% of those surveyed remain totally unaware of the upcoming IR35 changes and their consequences. Furthermore, fewer than half (44%) are aware that they need to prepare for these changes or are currently part way through this process and only 30% are prepared and have a plan already in place.

The results of the survey show that in spite of the 12-month delay of the implementation of the IR35 rules, a significant number of construction businesses do not appear to be ready. In fact, 76% of businesses surveyed admitted to being "not up-to-speed with these or still having outstanding questions ".

What steps to take between now and 6 April 2021

As stated above, the IR35 rule changes are due to be implemented on 6 April 2021, but there is still time to take steps to prepare, and seek advice where necessary, to ensure compliance before this date.

Businesses should start, for example:

  • Assessing how often and in what capacity they work with contractors at present, and if they are engaged through intermediaries;
  • Assessing whether the IR35 rule change will apply to them, considering the small company exemption applies, as referred to above;
  • Reviewing current contracts and considering the tax status of contractors; and
  • Reviewing internal systems, such as payroll software and ensuring there is provision to process income tax and National Insurance contributions if IR35 rules will apply form 6 April 2021.

Our Construction team have specialist lawyers from departments including the Commercial, Employment & HR, Governance, Procurement & Information and Dispute Resolution departments who are on hand to help you prepare for the IR35 rule changes, ensure compliance and answer any queries you may have, for example:

  • Reviewing current arrangements and drafting new bespoke agreements to ensure they are appropriately drafted to comply with IR35 requirements; and
  • Reviewing policies and procedures in respect of how businesses are making IR35 determinations.

*Results from Ranstad's survey: https://www.randstad.co.uk/about-us/industry-insight/ir35-drive-needed-construction/

For more information contact John Pickervance in our Construction & Infrastructure department via email or phone on 0333 207 1134. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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