New guidance has been published on the HMRC website, covering changes to the off-payroll working rules known as IR35 which will come into effect next year.
From 6 April 2020, medium and large-sized businesses will be responsible for deciding the employment status of workers they enter a contract with.
For every contract a business agrees with an agency or worker, it must determine whether the worker is considered employed or self-employed under IR35 rules.
It must then pass that determination and the reasons for it on to the worker or agency.
If the worker is found to be within IR35, meaning they are effectively working as if they were employed, the business engaging them must deduct tax and national insurance contributions from their fee, and pay this to HMRC.
It is also worth bearing in mind that HMRC have powers to look back retrospectively so over the long term it is important to get these arrangements structured correctly.
Andy Chamberlain, deputy director of policy at the Association of Independent Professionals and the Self-Employed, said the guidance falls “woefully short” and argued that it does not explain how to make accurate IR35 determinations.
Chamberlain added: “Fundamentally, however, this is not really about the guidance. The changes to IR35 were a disaster in the public sector, and they will be even worse in the private sector.
“No amount of guidance can change that, and we urge the government to delay and rethink these reforms.”
The employment status of individuals has been a long contested and confusing area. It is also an area upon which HMRC seem keen to clamp down.
The implementation of the dividend tax was designed to start this process and this will be taken further with the changes outlined above.
For companies unsure regarding working status and IR35 queries it is advised to speak to your professional advisors.