All you need to know about rule changes for contractors

Q

I AM a contractor but I believe there are changes coming to the off-payroll working rules (IR35). Is that right?

A

YES. There are thousands of contractors like those in IT, business consultants, drivers etc, being affected in the UK. The off-payroll working rules are intended to make sure that, where an individual would have been an employee if they were providing their services directly, they pay broadly the same tax and national insurance as an employee.

From April 6, 2020, all medium and large-sized private sector clients will be responsible for deciding if the IR35 rules apply to their contractors.

This moves the onus for IR35 decisions away from the worker to the (medium and large) private sector engager. This means many contractors are likely to be made employed by the company, which means you are likely to earn less due to employment deductions.

If a worker provides services to a small client in the private sector, the worker will continue to be responsible for deciding their employment status and if the IR35 rules apply.

The four key factors for a worker to prove that they are genuinely self-employed, and not caught by IR35 are:

■ No control: There must be no, or absolutely minimal, control over the “worker”.

■ No mutuality of obligations:

The “worker” has to show that they can turn work down. If there is an obligation for the “end client” to give work to the “worker”, and he or she has to accept it, there would be mutuality of obligations, and he or she would be an employee.

■ Substitute: Ideally the “worker” would have a substitute, at the same technical level as him or her, and have used that substitute.

■ Insurance: The “worker”, or their “personal services company”, must ideally have paid public liability insurance or other relevant insurance relating to their work.

Contractors can find information about changes to the IR35 rules in HMRC’s Contractor Factsheet.