IR35 has been a significant topic of discussion within the contracting community over the past year, following changes to IR35 regulations for the public sector back in April 2017. Below we will explore the history behind IR35, how changes have impacted the contracting world and what the future looks like for IR35.
The history of IR35
IR35 was introduced in 2000 as part of the Finance Act and was introduced to tackle the issue of ‘disguised employment.’ False self-employment, as it is often referred to, is when employers hire workers via contracts to avoid the responsibilities and costs associated with employing them directly. Simply put, the legislation aimed to establish the true status of a contractor in relation to a company they were working for, identifying whether it was a true B2B relationship, or just a case of ‘disguised employment’ and therefore the appropriate employment tax should be being paid.
Changes to IR35
Previously contractors would determine their own IR35 status, however changes on the 6th April 2017 meant that the responsibility for identifying the correct status of those working within the public sector would fall upon the hirer instead. This included recruiters, who were not only responsible for determining the status but also ensuring that the correct tax and NI was deducted and paid to HMRC if applicable.
The new rules have had a significant impact on the income of contractors working within the public sector. If these regulations are to be extended into the private sector, as is currently being discussed, countless more contractors will be affected.
Sterling & IR35
In Sterling’s opinion, despite the purpose of the new rules being to simplify IR35 legislation, the change has created other issues which are impacting the contracting community and the recruitment industry. Clear reforms are needed to simplify IR35 and limit the impact that these changes are having on contractors and the economy.
Whilst we believe in the purpose of IR35 and would welcome any legislation which targets unscrupulous employers from avoiding their responsibilities, we are also seeing many others penalised.
To aid limited company contractors in navigating the tricky waters of IR35, Sterling provides its contractors with an IR35 review prior to their start of each contract. This helps individual contractors to understand where they stand from the outset.
Are you unsure of IR35? Get in touch with the Sterling team today for guidance.