What Do The New IR35 Rules Mean For You?
Are you a day-rate contractor?
POSTED BY JONATHAN VOWLES ON 30/07/2019 @ 8:00AM
HMRC has released the new draft IR35 legislation, intended to be effective from April 2020. So, what does it mean for you?
For a lot of day rate contractors, the new IR35 rules mean that your average tax rate goes up!
copyright: bialasiewicz / 123rf
There is a caveat to this blog post, this new draft legislation is draft and subject to consultation ... so get your replies into the government by 5th September 2019 if you are interested.
Since it was released, we have a new Prime Minister and Chancellor and with new political imperatives around it might change. But it probably won't!
There are three key points:
Small end-clients outside of scope
New Status determination Statement
New Client led disagreement process
The new version of IR35 contains new rules and amends the existing legislation. The new provisions will apply to public sector bodies as well as medium or large businesses in both the private and third sectors.
Which highlights the first point; the new rules don't apply in situations where the end client is a small company defined by the Companies Act. Note that if the new off-payroll rules don't apply this means it will be IR35 business as usual. Which means paying attention to the contract terms in particular.
"For contracts involving larger end-clients, the
new rules will apply!
These are the same off-payroll rules used in public sector contracts, but with two helpful amendments which are noted below. If you think that the new rules will apply to you then now is the time to review your situation and personal finances.
For a lot of day rate contractors, the new rules mean that your average tax rate goes up ... from an average of 27.5% to an average of 55.8%. In other words, your disposable income will reduce by a chunk. It also has implications for your pension contributions and other business expenses.
The good part of the new rules are:
Status Determination Statement
The end-client must give the worker, and any agency, a statement confirming if IR35 applies, or not. Until this has been provided, the end-client will stand in the position of "fee-payer" (in other words they are responsible for ensuring the correct tax and NI treatment) with all the potential liabilities to tax and NI.
Client-Led Disagreement Process
The new rules give the worker or their company the right to appeal against an end-client status determination decision. The end client has 45 days to respond. If the end-client fails to do this then, again, they will stand as "fee-payer". What is not clear is if a worker would already be paid in advance of such an appeal, or whether an appeal would delay payment.
So, what next? If you are a day-rate contractor or run a day rate contracting business then start by asking when you will get your status determination statement. If you think your end-client might be small rather than medium or large then ask
"Would you like to know more?"
If you need help in planning your way forward in respect to IR35 then do give me a call on 01234 752 566 or click here to ping me an email and let's see how I can help you.
Until next time ...
More about Jonathan Vowles ...
I've been an accountant in and for business since 1987 and have a wide experience of consultancy, audit, accounts, taxation and wealth planning work from individuals and small businesses to multinational corporations and charities.
My eclectic interests in growing and developing business span a number of areas, which can be summarised as strategic business advice and tax saving advice.
I have worked with the Chamber of Commerce to deliver courses for people about starting up in business and have lectured about tax for a major accountancy practice and for Milton Keynes College.
I relax by reading fiction and by getting away from the office in a campervan.
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