What is IR35?
IR35 introduced in April 2000 by HMRC, is a piece of UK tax legislation designed to prevent tax avoidance by workers, and the firms hiring them, who are supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used. After some criticism from tax experts, IR35 will come into force in the private sector from April 2020.
The IR35 legislation looks to identify ‘deemed employees’ and ensure they are taxed correctly, however IR35 can impact those operating legitimately through a limited company structure due to the subjective nature of the legislation.
When is it coming?
Since 2017, in the public sector the client became responsible for administering IR35. As a part of this 2020 reform, the liability for paying the tax also transfers from the contractor to the fee-payer, which is likely either the recruitment agency in the supply chain or the hiring company (Client).
The IR35 rule is ready to be rolled out into the private sector from 6th April 2020, with medium and large businesses placed in charge of setting the IR35 status of contractors. When working with a company a private sector company that HMRC considers ‘small’ contractors will (currently) remain responsible for setting their IR35 status and payment all of taxes.
From 6th April 2020 onwards the fee-payer will be obliged to calculate and deduct the NICs and Income Tax from their contractor invoice before making a balance payment to the contractor.
What impact will IR35 have on professional services?
According to a recent survey published by recruitment consultancy firm Harvey Nash, approximately 20% of UK business are willing to reduce their contractor headcount rather than have to deal with IR35. This report also reveals that 17% of contracts would increase their rates to get relief from the additional tax burden.
Another survey by Brookson Legal states, “85% of IT businesses agreed that the legislation will have an impact on the number of contractors they hire — 12% more than the UK average of 73%”
This means that companies, using the services of contractors or freelancers could see a significant financial impact and a necessity to ensure that these employees fall inside IR35.
How can Applicita help?
The potential impact of IR35 could lead to a shortage of high quality affordable contractors resulting in increased project costs and a significant slowdown in delivery.
Applicita is a UK based company with a pool of talented non – UK developers. Since 2012 we have been providing development teams/individual contractors to medium/large UK based companies. For companies finding themselves forced to shed UK contractors Applicita can help. Our contract developers can join your existing team as a part of co-sourcing arrangement, or we can manage the deliverable for you as a full outsource partner; allowing you to benefit from competitive rates without any of the burdens imposed by the IR35 legislation.
- A flexible hiring model with a minimum 1-month commitment –
- No additional Tax/NI to pay so rates remain competitive and negotiable
- No administrative cost overheads to implement & maintain IR35
- A dedicated team of qualified Developers and support staff