The private sector is bracing for IR35 reform, which will come into force from 6th April 2020. There is a lot of trepidation among procurement interims and decision-makers about the new regulation as determining the IR35 status of a consultant or interim can be challenging.
Business leaders have already asked HMRC to postpone the introduction of the regulation without success as many businesses are still trying to fathom the effect that IR35 will have on the private sector.
The complexity of the rules
The business community in the UK believes that the rules governing IR35 are complex and can have far-reaching repercussions if misinterpreted. The rules state that the end-user is responsible for ascertaining the IR35 status of a consultant. Consultants and self-employed people working in different industries, including procurement, are worried as being deemed inside IR35 will have major tax implications.
Already, most banks and a few other large companies have stated that they will no longer be hiring contractors. This is because if these companies and institutions determine the status of the contractors incorrectly, they will be severely penalised. Therefore, rather than taking this risk, they have decided not to work with contractors.
On the other side of the spectrum are companies that are opting for blanket assessment, where they determine that all contractors and freelancers are considered insider IR35. This is also a problem as the rules stipulate that organisations must take reasonable care when they are assessing contractors. Experts believe that such companies will not be held liable by HMRC as they are deducting taxes at source, but this will impact the contractors, who will end up paying more when they are inside IR35.
The bottom line is that contractors’ businesses will be affected by IR35, and organisations are still grappling with IR35 status determinations. Most will have to quickly sign new contracts that clearly demonstrate that contractors are not employees of the companies they work for. However, companies are still trying to figure out the rules, and this can make it difficult for all stakeholders to find common ground.