IR35 rules to be rolled out to private sector in April 2020

Organisations in the private sector must plan and prepare now for changes to IR35 in April 2020 to avoid problems with contractors negatively affecting their performance.

Changes are to be made to IR35 rules for the private sector in April 2020 to bring them in line with public sector rules.

In April 2017, IR35 was reformed for the public sector, making it the responsibility of the hirer rather than the contractor to deem whether the contractor fell inside or outside of the IR35 rules.

Organisations and contractors in the private sector should familiarise themselves with the new rules and how they could affect them now to avoid running into problems in April.

What is IR35?

IR35 rules were introduced in 2000 to tackle tax avoidance by individuals operating as employees but being paid through their own personal service company. The rules can result in many self-employed contractors effectively being categorised as employed workers for tax purposes. Being ruled as inside of IR35 can significantly reduce a contractor’s income.

How could the changes affect private sector businesses?

For businesses and organisations, if not handled correctly, the changes could result in loss of top talent, causing skills shortages and negatively effecting business performance.

According to a report released by the CIPD and IPSE, over 50% of hiring managers in the public sector thought they had lost contractors due to the introduction of IR35, and 71% said they had faced challenges retaining their contractors.

Preparing for private sector IR35

Those in the private sector should learn from the mistakes made in the public sector and start planning and preparing for the introduction of IR35 in plenty of time.

Last minute blanket bans that place all contractors inside of IR35 can result in contractors being taxed unfairly.

To begin preparing for IR35, private organisations and businesses should familiarise themselves with IR35 and stay up to date with all developments. They should also communicate the upcoming changes with all contractors who may be affected and work with them to ensure an outcome that suits both parties.

For help or advice with IR35, speak to one of our experts here at Michael Bell and Co Accountants by giving us a call on 01484 690 730.