Chancellor, Philip Hammond delivered the Autumn Budget for 2018 on Monday 29 October 2018. As well as confirming plans to raise the national living wage to £8.21 per hour from 2019 and the personal allowance threshold to £12,500, it was also announced that the extension of IR35 to the private sector would be postponed until April 2020.
Mr Hammond announced that contractors working in the private sector would face tighter tax rules; an extension from the current rules for those working in the public sector. This means that, from April 2020, many private sector contractors will face increased tax and National Insurance (NI) bills.
IT contractors and consultants will be affected by the rules, which are being implemented to target those considered by HM Revenue and Customs (HMRC) to be employees. The rule change will not apply to the smallest 1.5 million businesses but the IR35 rules will apply if:
- you work through your own company for another business
- the way that you work is comparable to an employee of that business – you will, therefore, be required to pay income tax and NI at 12%
Taking on the responsibility for determining which contractors will be required to pay more tax and NI from April 2020 are larger companies, such as banks. If it is deemed that they are an employee, the organisation using the contractor will also be required to pay NI.
As for businesses, from 6 April 2020, they will need to extension as to whether the IR35 rules apply to contractors working through their company. If they do apply, the organisation paying the worker’s company will be required to:
- deduct income tax
- deduct employee NI contributions
- pay employer NI contributions
They have until April 2020 to enforce the changes, with the current rules continuing to apply to the 1.5 million smallest businesses.
Will the new rules affect your business?
The Check Employment Status for Tax (CEST) service to help you determine whether the new rules apply to your organisation.
Within the next few months, an additional consultation on the full reform details will be published. This will inform the draft Finance Bill legislation which is anticipated for publication in Summer 2019.
Want to know more?
Click here for the full IR35 update document from HM Treasury titled ‘Increasing compliance with the off-payroll working rules in the private sector’ – Budget, 2018.