(lively music)
- So the government has reaffirmed its plans
to make the changes
to what's called the off payroll working rules, IR35.
These are gonna be coming into effect
for the private sector in April 2020,
something that they've already done
for the public sector back in 2017.
This will have an effect on many contractors
and some freelancers, those who are operating
through what's called a personal services company,
a own limited company.
What this video is all about is to explain the new rules,
what it's all about and what contractors
and freelancers could be doing in order
to mitigate the risks before and during the changes
that will come into force.
So the off payroll working rules was already brought in
for the public sector in April 2017.
So it's been around for a few years already
in the public sector.
What's now happening is that the government
and HMRC are rolling this out for the private sector.
So that's the largest sector in the economy at the moment
and a lot of contractors and freelancers operating
in the private sector are now gonna feel the impact
of the off payroll working rules.
Now, let me just explain the first
and most pertinent change of these rules
in comparison to sort of the current IR35 rules
and that is that the onus
of determining the IR35 status per contract now lays
with the client or the agency.
So again, the onus of determining the IR35 status lies
with the agency or with the end-client.
That's a big, big change from what it used to be.
Previously, what used to happen under IR35 rules is
that the responsibility of determining IR35 status
per contract lay with the contractor
or the personal services company director shareholder,
and by doing that, a lot of contractors and freelancers
would quite simply get a IR35 friendly contract written up
regardless of how they were operating substance,
the legal form was right
and therefore the determination to be made outside
of IR35 was pretty much straightforward.
In a majority of cases,
most self determining contractors were going outside IR35
and very, very few were actually being challenged by HMRC.
Now with this shift of onus,
the end-client now has that responsibility
and there are also consequences
of actually not getting that determination correct.
Now, the determination is gonna come down to some checklists
and some tools that HMRC have provided in terms
of how you can determine the status of IR35
and that's ultimately what the end-client will be following
in terms of those rules and the guidance
but if they do get it wrong and it is challenged by HMRC,
then the consequence of that is
that the liability for Tax and National Insurance,
the additional liability for Tax and National Insurance
as a result, then lies with the end-client or the agency,
so there's quite a consequence.
Now key thing to know is
that the new legislation only applies to medium
and large organizations.
It doesn't apply to small organizations.
So if you're a contractor or freelancer working
for a small organization,
then actually you've got nothing to worry about in the sense
that the current IR35 rules will be the status quo.
That means the determination
of the IR35 status still will sit with you,
the contractor or freelancer
and your personal services limited company.
But let's be realistic, the majority of contractors
and freelancers of you out there are working for medium
and large sized organizations.
and with that, the first rule
or the first change here we say is the pertinent one
and the one that will impact you the most.
It's a part of the new process that's being proposed is
that the end-client need to provide what's called an SDS.
So that's the status determination statement.
Now this needs to be provided in writing
to the PSC limited company.
I, yourself, the contractor, the freelancer
and your limited company.
And the whole idea behind the SDS is
that the administration now of IR35 is firmly placed
with the agency, who if they are free payer
or the end-client
and it's up to them to make that status determination.
Another change is that the draft legislation is proposing
to withdraw the 5% administration allowance.
So what does that actually mean?
So previously, inside IR35 rules,
if you were inside IR35,
you can actually claim 5% administration allowance
for administering the IR35 rules.
It's like an expense allowance, even now we've draw in that.
So let's say for example, you earn 100,000 pounds,
basic math here, 5% of
that would have allowed you 5000 pounds
of settable against income before taxes deducted.
So these aren't legitimate expenses that were allowed.
That's now been taken away in terms
of the draft proposal legislation.
And the government have also released and launched the CEST
which is the contract employment status tool.
So this is a tool that's available out there
to end-clients, agencies and yourselves contractors
and freelancers running through your own limited company.
And the whole idea is that you can go on there
and you can do a snapshot,
you can do an assessment of your IR35 status
for a particular contract.
Now, that tool exists at the moment,
you can go on Google, you can find it,
there's been a lot of criticism about that tool,
that it's not robust, it's not fit for purpose.
A lot of sort of pushback from HMRC saying
that no, we built this tool, it's robust
and in my personal opinion, I think it's a tool
that needs a lot more work before actually,
it's fit for purpose.
So let me just remind you that the current legislation
that's been proposed is still in DRAFT format
as of today's date and today's date, we're in July 2019
as I'm speaking to you here, so it's still in DRAFT format.
It hasn't been enacted yet but the aim is
that it's gonna be enacted in the Finance Bill 2019/20,
which will happen in the last quarter of the year,
around about October 2019.
So there'll be announcement,
I'm gonna do another video on that once it is enacted
to give you more sort of an insight
into the final legislation.
So for many of you contractors and freelancers,
I think the key thing now is to start thinking
about what impact this could potentially have on you
and the first thing I would recommend doing is start
to sort of increase your knowledge
about the new IR35 legislation.
Now it's not final legislation at the moment.
I do reemphasize, it's in draft
as we currently stand as of today's date
and I'm speaking to you here now, as of July 2019.
However in my personal view
and for many kind of industry commentators out there,
there is a very, very high,
I'm talking 95% plus likelihood
it will be enacted in Parliament
and it will become the final bill
come the last quarter of 2019.
So it's best to start thinking about it now,
having those conversations,
have a conversation with your accountant,
with your accountant service provider,
perhaps even your HR department
if you are a contractor there.
Have a chat with them.
See what they're doing,
especially if you're in a medium or large organization,
are they taking on people to sort of help administer this?
What are their plans?
What I'm gonna be doing is another video very shortly
after this, which will start to sort
of help contractors think about,
okay, what kind of changes they can make to their behavior,
to the way they work, to the substance of how they work,
in order for them to mitigate the risk
of falling inside IR35 for a particular contractor.
And the way that will be done is for contractors
to start thinking like freelancers do.
Freelancers as as such, where they have more control
over what they do, more multiple clients
and the right to substitution.
So moving away from the sort of one client,
one organization, one contract way of working
into another way of working.
However in saying that, again I do re emphasize,
the key thing here is
don't let the tax tail wag the commercial dog
because at the end of the day,
you don't wanna be putting yourself
or talking yourself out of work just
because you've got to pay more tax and in many cases,
from what the experience was in the public sector,
a lot of you contractors will probably go out there
and negotiate a pay rise anyway or a contract rate rise
and by doing that it will help absorb
if not mitigate some of the higher taxes.
That's just the way the economics works.
So there are very other,
various other things to consider in that respect.
So stay tuned.
I hope this little bite sized video has been quite useful.
If you have any comments, please comment below.
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and please watch out for some more follow on videos
with regards to IR35