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What is IR35?
IR35 is a piece of complex tax legislation that was introduced in 2000 to target a tax loophole that HMRC considered may result in an underpayment of tax contributions. The legislation was designed to make sure that an individual who works like an employee, but through their own limited company, pays broadly the same Income Tax and National Insurance contributions as those who are employed directly.
When will any proposed changes come into effect?
When IR35 was introduced in 2000 the onus was placed on the individual to assess their own tax status but HMRC have been introducing changes to the legislation over the last few years. In April 2017 businesses operating within the public sector saw the burden shift to them to assess the ‘employment status’ of an individual for tax purposes. Thus, if a public sector business assessed an individual who claimed to be self-employed as falling within IR35 they were required to notify the individual and confirm that deductions would be made for Income Tax and National Insurance contributions.
As of 6 April 2020, the burden for assessing employment status in the private sector will shift to the ‘end user’ i.e. the business engaging the self-employed individual whether directly or through an intermediary business.
It is anticipated that the changes will bring in £3.1 billion in additional tax revenues in the next 4 years. This is clearly across the broad spectrum of business sectors and not solely within the transport sector however, it considered that the use of self-employed individuals is prevalent with the transport sector and this will need to be addressed in order to remain compliant with tax legislation.
Will this affect me as an operator?
The changes due to take effect on 6 April 2020 apply to medium and large business only and there is currently a small company exemption that will apply. A medium and large business is defined as a business that meets two of the following three criteria:
- A turnover of more than £10.2 million;
- A balance sheet total of £5.1 million or more; or
- More than 50 employees
Businesses falling within the above criteria will therefore need to take control of determining an individual’s employment status for tax purposes and so if you engage individuals either directly through a Personal Service Company (PSC) and/or another form of intermediary company you will need to act now.