Budget 2018: IR35 Extended to the Private Sector

As expected, the chancellor has gone forward with the extension of the off-payroll working rules (IR35) to the private sector.

But after some recent legal cases and issues with checking employment status for tax made it clear that there was a need to proceed with care, the implementation date has been put back to April 2020 and the change affects large and medium-sized businesses only.

The IR35 rules are as follows:

  • Businesses will be responsible for assessing an individual’s employment status.
  • The reform will not apply to the smallest 1.5 million businesses, and the large and medium businesses to which it will apply will be given longer to adjust, with the changes being introduced in April 2020.
  • From 6 April 2020, medium and large businesses will need to decide whether the IR35 rules apply to an engagement with individuals who work through their own company.
  • Where it is determined that the rules do apply, the business, agency or third party that pays the individual’s company will need to deduct income tax and employee NICs and pay employer NICs.
  • HMRC will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35 for the first time following the reform, and businesses’ decisions about whether their workers fall within the IR35 rules will not automatically trigger an enquiry into earlier years.
  • HMRC continues to work with stakeholders to identify improvements to checking employment status for tax and issuing wider guidance to ensure the reform meets the needs of the private sector. Enhancements will be tested with stakeholders, operational and legal experts before implementation.
  • A further consultation on the detailed operation of the reform will be published in the coming months, and will inform the draft Finance Bill legislation that is expected to be published in summer 2019.

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