Vale & West Chartered Accountants Blog

Private firms should start preparing now for IR35

According to recent research, private firms that employ contractors could experience major disruption when changes are made to IR35 and Off-Payroll working rules in April 2020, as tax liability changes will affect national insurance and significantly increase the cost of hiring them.

For that reason, businesses should start to prepare now if they wish to avoid project delays, difficulties around sourcing the right contractors for the job and reduced workforce mobility.

Currently, if IR35 applies to an individual, their employer’s NI is deducted from their fees. However, under the Off-Payroll rules, this tax, along with the Apprenticeship Levy, will be paid on top of the individual’s earnings by the fee-payer.

Although a recruitment agency will often qualify as the fee-payer, this cost could cause numerous agencies to fold if they genuinely had to contend with it, so realistically, in these cases, the hiring firm will have no choice but to cover this cost.

Therefore, this new liability will increase the cost of hiring contractors, which are affected by IR35, by 13.8 per cent for employers’ NI and by 0.5 per cent for the Apprenticeship Levy.

The new rules will also inevitably bring about renegotiation, as contractors who will no longer be able to claim tax relief on expenses, such as overnight stays, will likely want to increase their contract rates.

According to the Office for Budget Responsibility (OBR), the anticipated impact of the Off-Payroll rules will result in a very high level of behavioural uncertainty. Moreover, according to the OBR, at the moment there is ‘no information on potential behaviour’ available.

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