IR35: ‘off-payroll tax’ reforms in the private sector from 2020

Even the tax specialists we have spoken to are not 100% clear on the outcome of the new off-payroll legislation. But we do know that this legislation is going to be a massive change when it comes into force in 2020 in the private sector. But will it actually be good for the offshore sector?

A little background: IR35 was introduced in 2000, to stop an employee from leaving their permanent job and returning to it as a contractor in a bid to avoid paying tax and National Insurance at the higher rates.

The reforms were initially restricted to the public sector but in last year’s Budget it was announced it will be extended to the private sector too, in April next year. The UK government estimates that it’ll receive a boost of around £3bn in tax revenue by 2024 after the private sector roll-out.

There are threshold tests – does the person have control over their work, how it’s done and when or where; can the person get someone else to do the work for them; and obligation – does the worker have an obligation to accept future work offers, or does the company have an obligation to offer further contracts?

So it now falls to companies to look at their workforce and consider the makeup of their workforce. Complex supply chains in Oil & Gas mean that determining whether there is an underlying employment relationship can be a complex process. Questions need to be asked about long-term contractors and whether they should become employees instead. According to a report by AGCC, 10% of firms plan on doing this.

Some observers feel this could plug a skills gap in the industry, shoring up talent and supporting on-the-job training and personnel development. This is an issue we’re currently addressing, with our recently launched software training programme.

For freelancers, it’s important to be able to document your working relationship. As well as keeping accounts, there are other ways you can show your independent company status such as having insurance policies, your multiple client contracts and billing.

There is plenty of advice around – and it’s important that you know where you stand. According to Totaljobs.com, HM Revenue and Customs looked at a number of standard agency contracts and has, as expected, suggested that such contracts fail IR35. HMRC will only consider whether specific contracts fail the test and will not give any clearance on standard contracts.

With so much to address, it can take several months to ensure the relevant controls and processes are in place to cope with the new rules. The new rules come into force in April 2020.