Barclays move adds to the uncertainty over latest tax rule changes
EARLIER this year I wrote about how the IR35 tax rules are changing from April 2020. IR35 is shorthand for the tax rules that seek to prevent people avoiding paying employee tax and national insurance by providing their services through limited companies.
It’s called IR35 because it was the Inland Revenue (now HMRC’s) 35th press release about the budget in which the rules were announced.
Also called the off payroll rules – because they relate to those who are not paid through payroll – they simply provide that if someone is to all intents and purposes working like an employee then they should pay tax as if they were an employee.
What is changing in April 2020 is that from then the onus will be on medium-to-large private sector businesses to decide whether someone who works for them is selfemployed or not.
And if the business decides the worker is not self-employed, they must account to HMRC for the appropriate tax and NI.
HM Treasury says that the costs of non-compliance will hit £1.3bn by 2023-2024.
The public sector has already had to do it this way since April 2017 and HMRC estimate this has raised £550m in tax and NI in the first year.
The construction industry has had its own special tax deduction scheme for contractors (CIS), also aimed at improving tax compliance for contractors, since 2007.
The 1.5 million smallest organisations are not subject to the new rules.
For the medium-to-large organisations that are affected, each case turns on the facts of the engagement.
If a worker is genuinely selfemployed the changes do not impact the arrangement.
This is not a new tax, but a shift in responsibility for complying with the existing rules.
If a business determines that a worker passes the test of selfemployment (and there’s an online tool to help determine that) then the business can continue to invoice for their work on a gross basis and account for their own tax.
If they don’t, the organisation will be responsible for deducting employee tax and NI.
The changes do not mean someone cannot contract through a company if that is what they want to do, only that tax may be deducted at source. The factsheet confirms that the changes are not retrospective and says the HMRC will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35 for the first time.
Get it right from April 2020 and you’ll have nothing to worry about, is the message.
However, it seems Barclays Bank has decided that in order to get it right from April 2020, it is just going to deduct tax and NI at source from contractor payments.
Earlier this month, the recruitment and HR press reported on a letter that Barclays has apparently written to its contractors that provide services to it through a limited company.
The letter stated that in light of the changes coming into force on 1 April 2020, Barclays will not extend the contracts of off payroll contractors. New or renewed contracts will be on a PAYE basis.
Barclays itself has not commented on the reports in the press, so other than the information contained in the letter, the bank’s rationale for this decision has not yet been expanded upon.
Contracting and the flexibility it brings can suit both business and worker.
The upside of greater flexibility of working hours, the ability to say no to the next assignment and being able to account for their own tax and to charge expenses against profits can make the downside of no sick pay, holiday pay, pension or job security worth it for contractors.
Barclays are not saying they will take on their contractors as employees and pay them employment benefits, only that contractors will have tax and NI deducted from their payments at source.
For some contractors, the downside with no upside is not going to be attractive.
Will the contractors re-negotiate their terms? Insist on being taken on as employees? Choose not to work for Barclays at all?
Will other large businesses follow Barclays’ example?
All of this remains to be seen.
■ HM Treasury has produced a factsheet on the IR35 changes which is available online here: https://assets.publishing.service. gov.uk/government/uploads/system/uploads/attachment_data/ file/818816/OPR_Factsheet_.pdf