IR35 tax laws postponed for private sector amidst coronavirus pandemic, but what is IR35?

  • IR35 is a UK tax law otherwise known as Intermediaries Legislation.

    It was designed by the government through HMRC to combat tax avoidance by those working for firms through an intermediary company, but who would technically be an employee if that intermediary were not used.

    For example, a freelancer could work on a self-employed basis for a company - usually through an intermediary rather than on an employment contract - so they would become “disguised”.

    The law came into action in the public sector in April 2017, which meant that all public authorities must now assess every engagement's "employment status" for tax purposes, to ensure they meet their tax and National Insurance obligations.

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    If the engagement was through a Personal Service Company (PSC), previously said company would determine the employment status for tax purposes, but now the company the workers are providing services for are legally obliged to determine this.

    The legislation was to be applied to the private sector as of April 2020, but the HM Treasury announced in the House of Commons yesterday that these changes would be delayed for a year due to the coronavirus pandemic.

    Andy Chamberlain, Director of Policy at IPSE (the Association of Independent Professionals and the Self-Employed) said that this was “the sensible thing” to do, adding:

    “These changes have already undermined the incomes of many self-employed businesses across the UK. However, they would have done even more serious damage if they had gone ahead as planned.

    “This is a sensible step to limit the damage to self-employed businesses in this grave and unprecedented situation, but we also urge the government to do more. It must create an emergency Income Protection Fund to keep the UK’s crucial self-employed businesses afloat.”

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    According to freelance guide website Contractor Calculator, “the financial impact of IR35 is significant. It can reduce the worker’s net income by up to 25%, costing the typical limited company contractor thousands of pounds in additional income tax and National Insurance Contributions (NICs).”

    Last year, HMRC won a court case against the BBC (a public entity) when it pursued three presenters - Joanna Gosling, David Eades and Tim Willcox – “for £920,000 as part of a crackdown on the use of PSCs”.

    The Telegraph reported that while the trio had argued that they were self-employed, the court ruled in a split decision, resolved on a casting vote, that “the assumed relationships were ones of employment” as the BBC told the presenters how, where and when to work.

    RELATED: Ireland called out as a tax haven in IMF report

    Find HMRC guidance COVID-19 here.

    About the author

    Niamh is a Sync NI writer with a previous background of working in FinTech and financial crime. She has a special interest in sports and emerging technologies. To connect with Niamh, feel free to send her an email or connect on Twitter.

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