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What You Should Know About the Upcoming changes to IR35

April 13, 2016 by Christopher

people-coffee-notes-teaThe 2016 budget saw changes to the intermediaries legislation known as IR35, to take effect from April 2017.  As a business owner myself I know how much a new law like this could cost me.

Contrary to the predictions of many economic observers, the public sector will be the only area that will be affected by the new changes, as they stand.

Does IR35 Apply to You

Rather than deciding themselves whether IR35 legislation applies to them, individuals working in their own company within the public sector will see their public sector employer, an agency, or a third party take responsibility.

One of the three will pay the required PAYE tax and National Insurance Contributions to HMRC.

In real terms, if the engagement is classed as coming under IR35 that means that the public sector employer (or agency/third party) will have an obligation to ensure the operation of PAYE on payments made to a worker’s intermediary company in the contractual chain.

They will have the benefit of clear objective tests designed by the government, along with online tools that can provide feedback on HMRC’s view of a specific engagement. The public sector company will also be obliged to account for national insurance liability for the associated employer.

 

Benefits of IR35

The provision of the clear objective test and digital tool also looks set to benefit private companies and agencies, who will also be able to make use of it.

The government currently offers the Employment Status Indicator (ESI) online, and it is presumed that the new tool will be very close to this resource in its nature.

In the wake of the announced changes, companies within the private sector have been reminded that they will not be affected by the new regulations, and should continue to follow the current IR35 rules.

The reasoning behind the government’s IR35 changes is that, as the public sector are answerable to the taxpayer, they should be getting it right when it comes to employees paying their taxes.

It is also part of the government’s drive to make IR35 legislation “more effective in protecting the Exchequer and leveling the playing field between direct employees and those who work in a similar manner to direct employees but through their own limited companies”.

In the lead up to the changes taking effect next year, we are likely to see a bigger demand for bookkeeping services within the public sector, as it adapts to the added responsibility.

New rules like this may mean digging deeper into your companies pocket book but it also means your company may avoid bigger financial issues as a result of this change.

 

Do Your Research

As final thought before you get all worked up about this new legislation take the to time to properly research it before you make any quick decisions.  I know personally I’ve spent a lot of time doing this myself.

So what do you think of IR35?  Share your thoughts below.

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Filed Under: Business Tips

About Christopher

Chris is a personal finance blogger with Stumble Forward helping people avoid life's financial mistakes and live a higher quality financial life.

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Hi, my name is Chris! I’m a personal finance and small business nerd.  Check out my blog where I share all of my favorite tips about saving money to running a small business.

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