IR35 in the Professional Services sector
As predicted the October 2018 budget introduced the extension to the Intermediaries legislation – usually referred to as IR35 – which will come into force from April 2020 for “medium” and “large-sized” (definitions as yet unspecified) businesses in the private sector.
For the Professional Services sector we anticipate that this will impact the engagement of Partners and groups where Limited company structures are used resulting in intermediaries providing ‘personal’ services.
Since April 2017 the public sector e.g. NHS Trusts and the BBC, have been required to examine the arrangements they have with workers who supply their services through intermediaries, including agencies, partnerships and personal service companies (PSCs). Where, but for the existence of the intermediary, the arrangement would be one of employment, public sector engagers are required to operate PAYE on all amounts payable to the worker either directly or via an intermediary.
The main focus of Government is to extend the current public sector IR35 rules to the private sector.
Experience suggests that private sector businesses will require all of the time afforded to them to prepare for the change. Failure to prepare and be ready for April 2020 could result in significant:
- labour supply issues
- business continuity issues
- liabilities to:
- tax & national insurance,
- interest and penalties
Arrangements outside of IR35 may have a commercial ‘edge’ and may encourage potentially non-compliant behaviours which could impact the effectiveness of the new proposals.
It is strongly recommended that any business paying workers through intermediaries should review their arrangements to assess those off-payroll workers that are:
- genuinely self-employed
- definitely caught by IR35
- potentially less certain and require detailed review.
An early intervention to embark on a programme to identify those contracts that are at risk, to plan how to manage any potential changes and ensure that steps are in place to make sure that PAYE is operated where appropriate from 6 April 2020, or introduce required changes, will be essential.
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