New IR35 rules: Tax changes for businesses hiring contractors
Changes to the way contractors operate are coming into effect from 6th April 2020. This may affect you if you use external contractors.
From the 6th April 2020, if your garage is classed as a medium or large organisation (with a turnover of more than £10.2 million/more than 50 employees), you will be responsible for determining the employment status of the contractors for tax purposes. Currently, contractors have responsibility for this. The changes coming into force could affect how you pay tax and national insurance contributions.
Information on the .Gov website states:
“Small-sized clients in the private sector will not have to decide the employment status of their workers. This will remain the responsibility of the worker’s intermediary.”
If you are affected, you will have to provide a “status determination statement”, which will explain to the contractor the decision you have made and the logic behind it. You may need to ask for further information from the contractors. You must take reasonable care when you decide the employment status of a worker - failure to do so will result in the worker’s tax and National Insurance contributions becoming your responsibility.
If you decide that the contractor is employed for tax purposes, you will have to deduct the necessary tax and national insurance before you pay them, or if they are hired through an agency, the agency will do this.
If you decide that they are self-employed, then they will remain responsible for meeting the tax and national insurance obligations.
Depending on the contractor’s personal circumstances, you may wish to change the terms of their contract to reflect whether you consider them self-employed or an employee. It is also possible that they will have to pay more income tax and national insurance contributions if they were previously mislabelled for off-payroll rules.
If you have further questions about the changes to IR35 need more information, please call the direct member helpline or 0845 305 4230.