If you operate as an intermediary, for example a Personal Service Company (PSC), then you are responsible for ensuring compliance with the Intermediaries legislation, known as IR35. You are therefore responsible for ensuring whether IR35 applies for each individual assignment.
IR35 is intended to catch those working as “disguised employees” so as to ensure they are taxed in the same way and pay National Insurance Contributions in line with an employee. The current test looks at the underlying relationship between you, as the worker and the client for each contract or engagement.
The Chancellor’s said in his July 2015 Budget speech that, currently, IR35 was ineffective, with non-compliance expected to cost the Exchequer £430 million this year. The Chancellor asked HMRC to start a dialogue with business on ways to improve the IR35 Legislation; their objective being to find a solution that protects the exchequer and improves fairness in the system. The first discussion document was published on the 17th July 2015 and included proposals to change the “test” and to place a greater obligation on the end engager.
It is widely believed throughout the industry that the expected tangible financial benefits are unlikely to be realised and that the proposed changes substantially fail to consider the whole picture, are out of touch with the realities of the modern PSC and fail to address current issues of non-compliance. The discussion document could however herald a positive step to modernising IR35 for the better, providing that alternative suggestions and responses from industry and individuals are taken on board. Paystream has been actively involved in this discussion process recognising it as an opportunity for progress in this area.
Whilst this dialogue continues one constant remains and that is although the long term future of IR35 may be open to debate, the government has no immediate plans to scrap the legislation but changes to how it operates are looming..
Although just speculation at present and following on from the discussion document, HM Treasury’s recently leaked proposals indicate that the imposition of a one to two month time limit on contracts, before the end client or the intermediary must decide whether the assignment falls inside or outside IR35; the adoption of the supervision, direction and control test and a debt transfer provision are the preferred options, with the only exemption being where the contractor is working for more than one client at a time.
The government has given no deadline for any potential modifications but an announcement in the Autumn statement seems likely, so watch this space! In the meantime the current rules remain and so it’s business as usual. In the event of any changes Paystream remain proactive in ensuring we are up to speed and fully engaged with alternatives, being well placed to transfer our existing expertise and knowledge to any new guidelines or legislation that may impact your business.
As IR35 remains a watch area by HMRC it is more important than ever to ensure you seek expert advice so that you remain compliant; the consequences of failing to consider if IR35 applies to each of your engagements could have serious implications for you and your business. Here at Paystream we believe that compliance is key to running a successful and stress free business and our Compliance Team are at hand to help. Our IR35 review service is available to existing and new customers and offers jargon-free and easy to understand advice. Feel free to emails us at IR35@paystream.co.uk.