Press releases

Government ‘gets IR35 done’: Deloitte comments on confirmed changes to off-payroll working in the private sector

11 March 2020

Mark Groom, employment tax partner at Deloitte, comments on proposals confirmed today that the government will go ahead with reforming the tax rules known as “IR35” in the private sector, effective from 6 April 2020:

“Hopes were dashed today for many contractors and some businesses holding out for a possible deferral of the new measures for a further year.

“So far businesses have reacted to the new rules in different ways, some imposing a complete ban on hiring contractors through PSCs. Others have opted to hire contingent labour only if employed through employment companies – known as Umbrella Companies.

“Those that are prepared to continue hiring PSCs do so at a considerable additional cost and risk. If a business gets IR35 wrong, it could face a tax and national insurance (NI) bill in excess of around 50%-60% of the fees paid to contractors for their services.

“Businesses now have less than a month to complete their preparation for the changes on 6 April. Many are nearly there, but those who were hoping for a u-turn today, now truly need to ‘get it done’.”

End

Further detail on the changes:

  • The changes only apply to contractors providing personal services through an intermediary such as a personal service company (PSC), where they are ‘deemed employed’ and provide services to a private sector client which is ‘medium or large’. Services to public sector clients have been included in the new rules from April 2017. 
  • Tax risks arise due to:
    • Ongoing uncertainty when determining employment status.
    • Clients receiving services are only in-scope of IR35 if those services are ‘personal services’. 
    • Clients ‘contracting out’ services are not in-scope, although the providers of those services may be.
    • If a client makes a mistake and is found liable, no offset is available for any taxes already paid by the contractor and/or their PSC.
  • Additional costs can arise from commercial negotiations, new administrative requirements, systems and legal changes that need to be introduced and maintained. Contractors’ travel expenses to get to the place they are contracted to work, which can be substantial, are also taxable under IR35.
  • The government has recently concluded a review of the reform, and is making a number of changes to support its smooth and successful implementation. For example, overseas clients will now not be brought into the new rules, provided they do not have a place of business in the UK. HMRC will also not charge penalties if businesses make inadvertent errors.

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