IR35: What`s happened so far?
With the off-payroll reforms to the private sector only 2 months away, we thought now would be a good time to look back over the history of IR35, which first came into the public eye back in 1999. 22 years later, and after several changes along the way, the biggest change is now due to happen – which will affect the majority of contractors, as well as their recruiters and end clients.
We therefore thought it would be useful to remind you of what has happened so far, and what exactly is changing once the reforms will come in to place on the 6th April.
A history of IR35
The term IR35 was first coined way back in 1999. The Chancellor of the Exchequer at the time, Gordon Brown, announced the plans as part of the year’s budget. This was first announced as a means to crack down on disguised employees – those who avoided tax by working through a limited company, when in fact their working practices were more in line with a traditional company employee.
Officially known as Intermediaries Legislation, the new regulation that came to be known as IR35 became law in April 2000 as part of the Finance Act.
Following the coalition government in 2010 formed by David Cameron and Nick Clegg, George Osbourne became the Chancellor of the Exchequer. Osbourne announced the creation of the Office of Tax Simplification (OTS), with one of its main objectives was to review and improve IR35.
Following some deliberation and three different ideas presented to the Government, it was decided IR35 was too important to be scrapped, and instead called for it to be updated. The changes made included creating a dedicated IR35 helpline, publishing clear guidance and scenarios to help individuals determine their status and creating an IR35 Forum to monitor the improvements made.
IR35 changes to the public sector
IR35 was once again raised by the Government in the 2015 Summer Budget, with the Government at the time releasing a document entitled ‘How to make IR35 more effective in protecting the Exchequer’.
HMRC believed that the current IR35 legislation was ineffective, with the Government estimating that non-compliance may cost £430 million a year.
Following this investigation in 2015, on the 16th March 2016 (Budget Day), the Government announced a clampdown on off-payroll working within the public sector.
Fast forward to December 2016, and the details of the IR35 reforms are published. It is announced that from 6th April 2017, public sector clients would have the responsibility for determining whether a contractor is working inside or outside IR35.
If the contractor was deemed inside IR35, the client would be responsible for collecting PAYE and NI at source.
The public sector reforms went live on the 6th April as planned. To help contractors, recruiters, and end clients determine an IR35 status, a new IR35 employment status tool (ESS) was launched. This tool would later be developed into the Government’s CEST tool, which is still used today.
IR35 changes to the private sector
In October 2018, the Chancellor announced that the off-payroll reforms would be extended to the private sector, with effect from 6th April 2020.
With just a few weeks to go until the reforms were due to be made live for the private sector, in March 2020 Rishi Sunak announced that the IR35 reforms would be delayed by a year. This decision was made in response to the coronavirus pandemic.
When will the IR35 reforms take place?
Sunak was very clear that the IR35 reform delay was a delay as opposed to a cancellation, and currently there is nothing to suggest that the reforms will be delayed again, and as it stands they will come in to effect on the 6th April 2021. Ultimately, we don’t believe that the reforms will be delayed again, you can read why here.
How can Kingsbridge help?
With the reform deadline coming ever closer, it’s incredibly important that as a contractor, you are able to show your IR35 status is outside if it is. Getting an inside IR35 status determination will result in you paying the same tax and national insurance contributions as if you were an employee of the company, resulting in a possibly significant loss of income.
We’ve already seen some contractors placed inside IR35 by means of blanket determinations, a less than ideal outcome for them.
Our award-winning IR35 Status Tool offers a status review for just £50 plus VAT. Once the questionnaire is completed, an instant result is given. In the case of an indeterminate result, this is passed to our IR35 expert team for them to assist with a manual review (at no extra cost).
We’re currently the only IR35 solution provider to offer this hybrid tool so to take advantage of it, or to suggest it to your client, visit our site today.