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The Budget 2018: Extension of IR35 working rules to the private sector

The Budget 2018: Extension of IR35 working rules to the private sector

  • United Kingdom
  • Tax planning and consultancy - Budget

30-10-2018

As anticipated, the Chancellor confirmed in the Budget that the way IR35 (off-payroll tax rules) is operated and enforced in the public sector will be extended to the private sector. However, this change is being delayed until 6 April 2020 and will only apply to large and medium-sized businesses.

Last year the government made changes to the way IR35 is applied in the public sector. In particular, where a worker supplies his/her services to a public authority via an intermediary, such as a limited company, then liability for determining employment status transferred to the public authority. The authority, or an intermediary, also became responsible for deducting the relevant income tax and national insurance contributions (NICs) and paying them and employer NICs to HM Revenue & Customs, if IR35 applied.

A consultation on extending these rules to the private sector, together with a review of how the rules were working in the public sector, took place earlier this year. This consultation disagreed with anecdotal reports that the IR35 change had led to public authorities struggling to recruit contractors and that contractors had raised their rates to offset IR35. It did find that, initially, some public authorities had found the extra admin associated with applying IR35 challenging and that some contractors had become employees after the change was introduced. Either way, we expect this change to be unpopular with businesses as they realise what is involved, particularly where they engage large numbers of off-payroll workers using their own personal service companies.

The government has promised a further consultation on the detailed operation of the new rules in the coming months. This consultation will inform the draft Finance Bill legislation, which is expected to be published in Summer 2019. It has also promised better guidance on how to apply IR35 and to improve HM Revenue & Custom’s CEST tool (check employment status for tax). The new rules will be given effect from 6 April 2020.

Please do not hesitate to contact David Jervis for further information.

Please view our dedicated Budget 2018 hub. It will give you access to our watch list, our contributors and relevant articles and tweets.

www.eversheds-sutherland.com/thebudget

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