- 1. What is IR35?
- 2. I’m struggling at the moment. What financial support is the government providing to contractors and personal service companies in this period?
- 3. What if you haven’t filed your self assessment tax return for 2018/19 yet?
- 4. What support can I receive as a contractor operating a 'personal service' company?
- - What else can I do?
IR35 - What's next?April 7, 2020
The next phase of IR35 was due to come into force just a few weeks ago, but as a result of coronavirus, it's been postponed by a year. With the situation in flux, we're keeping a close eye on developments. Read on to learn more about what might happen next with regards to this pivotal piece of legislation.
What is IR35?
IR35 is a piece of legislation that has existed since 2000. It requires contractors and companies providing ‘personal services’ to determine whether or not they are a ‘deemed employee’ and therefore if PAYE should be applied to their remuneration or not.
What was going to change a few weeks ago?
Essentially, the responsibility of assessing your employment status was going to be passed from contractor to end client. This change was made to contracts within the public sector in 2017, and – until a few weeks ago – was going to apply to private sector contracts as well.
Will this still happen?
Yes, but a year later than planned. The government has announced that the change will now take place on 1st April 2021.
What will it mean in practice?
It will mean that for every contract you (as a contractor) enter into, your end client (the company or person you work for) will be required to perform a ‘status determination statement’, evaluating whether or not your services qualify you as a 'deemed employee.' Where that proves to be the case, your employer will need to deduct PAYE and NI, for tax purposes, from your pay. This SDS always has to be shared with you. More details are here.
What will the SDS look like?
It will look like the HMRC’s CEST tool (Check Employment Status for Tax), which personal service contractors/companies are already expected to abide by. Where the CEST tool is ‘unable to determine’ a contractors status, the end client will need to do extra work to meet the legal obligations of completing the SDS.
HMRC expects the SDS to be regularly reviewed by employers. It's recommended that you, as a contractor, start using this tool ahead of April 2021 so you're prepared for potential changes in advance of your end client requiring them from you.
Will anything else change?
It's hard to say. The Chancellor has noted in one of his Downing Street briefings that this emergency response has shed increased light on the inequities in the different systems and rules. For now, the government will focus on the emergency measures, but it is definitely a space to watch.
I’m struggling at the moment. What financial support is the government providing to contractors and personal service companies in this period?
The support you're able to access right now depends on how you've reported your taxable income: under self-assessment as 'self-employed', or as PAYE income via your personal service company.
In the first instance, the government will assess the grant available to you based on the last 3 self assessment returns you've filed in tax periods up to 2019. You also need to provide evidence you've been trading in the 2019/20 tax year. More details can be found here.
What if you haven’t filed your self assessment tax return for 2018/19 yet?
If you were a contractor in 2019 and have not yet filed your tax return, you have until 23 April 2020 to do so in order to qualify for this scheme. That's only 18 days away – so let us know if you need help!
What support can I receive as a contractor operating a 'personal service' company?
At present, the only support available is through the Job Protection Scheme, and this only applies to companies that operated a payroll on 28 February 2020 (dividend payments do not qualify as self-employed income under this scheme, only salaries do).
Additionally, as the scheme requires you to not be working at all – which is at odds with the legal duties of a director under the Companies Act – this scheme is not offering much support to people in this category at present.
What else can I do?
Check out our earlier post on COVID-19 tax relief for small businesses & self-employed people.
Some highlights: You won't have to pay VAT due for the period 20 March 2020 to June 2020 until March 2021. Coronavirus Business Interruption Loans may be available. You can also contact HMRC to agree payment deferral of other tax bills such as corporation tax (although interest will arise on these deferrals). If you have business rates to pay, your local council should be in contact with you in the coming days if they have not been already.
We hope that helps clear up some uncertainty. It can seem like complicated stuff but we're always here to clarify, and speak in real terms so please reach out if you want to discuss your situation further.
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