HMRC representative Philip Horswill stated that: £400m was lost to non-compliance with IR35 in 2015-16. This is due to only 10% of contractors paying the correct tax. Changes to IR35 are made to collect the taxes that should have been paid if contractors had been correctly operating under previous IR35 rules.
Who the changes affect:
• public authorities who hire off- payroll contractors
• public sector tax managers, payroll managers, human resources managers and procurement managers
• agencies and third parties who supply contractors to the public sector
• contractors who provide their services to a public authority through an intermediary
Areas affected:
• Government departments (ie. TfL)
• The BBC
• Channel 4
• The Bank of England
• The NHS
• Police and Fire authorities
• Social Workers
re you a contractor working for a public sector client? You may see PAYE (Pay-as-you-earn) tax being withheld from your payments if your client adjusts your IR35 status accordingly. Your take home pay may be affected if your public sector client or agency believes you are working on an assignment caught by IR35. If a contractor is deemed to be inside IR35 then the client or agent will deduct income tax and National Insurance as they would for their regular employees.
If you are a recruitment company or a public sector body and are found to have assessed a contractors IR35 status incorrectly, you will be liable for underpaid tax and NIC and any interest and penalties.
Why are things changing?
In 2000, the IR35 rules were introduced to prevent workers avoiding employee income tax and NIC by supplying their services through an intermediary and paying themselves in dividends. The Government has found that contractors have largely been labelling themselves incorrectly - the government is beginning to crackdown on those evading tax with the proposed reform.
Useful links:
Reform of Intermediaries Legislation
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Implications of IR35 Reform
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