IR35 - the net tightens 20 FOR 2020
You just know that when a press release about tax becomes notorious among the business community, it has left its mark, writes Nigel Tillott. In 1999 HMRC, or the Inland Revenue as it then was, issued ‘Press Release no 35’. This related to the tax to be applied to those supplying their services to businesses through their own limited company, when the Revenue took the view that they were in reality employees. That press release gave rise to the notorious label - IR35. And its impact is growing ever more significant. HMRC understandably wishes to maximise legitimate tax take. It has long been of the view that too many individuals have been able to gain the benefits of self- employed status, when contracting and providing services through their own limited company. There has already been tightening up of the rules within the public sector and from April 6, 2020, this will extend to the private sector. In basic terms, HMRC will look at the relationship between the contractor and the organisation it is providing services to. If the contractor is providing the services through a limited company, or indeed a partnership, HMRC will look at the relationship as if a limited company or partnership didn’t exist and there was a direct relationship between the contractor himself or herself and the user of their services. If the view is taken that this is in reality an employment relationship, the recipient of the services will be regarded as the ‘deemed employer’ and will be expected to have deducted tax and
National Insurance contributions as if the contractor was an employee. The requirement of the deemed employer to get the tax treatment right has created panic amongst medium size and larger businesses who are responsible. A number of larger organisations appear to have taken the blanket view that they will regard all contractors as deemed employees and deduct tax and National Insurance contributions across the board. This could lead to a large number of disputes between contractors and those they provide the services to. A lot of these are highly skilled individuals who receive significant fees for their services and are highly valued and much needed by those to whom they provide their services. A more measured approach would be to look at each relationship on its individual merits and to then reach a considered decision. There are a number of established tests which help to determine employment status. Courts look at the position as a whole and then ‘take a view’. The starting point is the contract itself. How does this describe the relationship? If the contract is a sham and doesn’t reflect the reality, the reality will be looked at instead. However, if the contract accurately sets out the relationship and points towards self-employed status, then that is a very significant factor. A number of key elements are looked at in determining the status. A very important one is that of control. If the user of the contractor has a very significant degree of control over the contractor, it points strongly
42 | February 2020 | www. punchline-gloucester .com
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