What is IR35 tax and what are the proposed changes?

HMRC have announced new April 2020 tax rules (Picture: PA)

The government will enforce changes to IR35 from April 2020 which will affect the way tax is paid.

IR35 tax largely applies to self-employed individuals who provide “services through an intermediary”, according to HMRC.

In April, updated legislation will roll out to make sure these types of workers pay broadly the same tax and National Insurance contribution as employees.

Many more workers are expected to come under the umbrella of IR35 after April 6.

IR35 is designed to assess whether a contractor is genuine or a hidden employee for tax purposes.

New tax legislation is coming in this year (Steven Buissinne)

Why was it brought in?

HMRC introduced IR35, also known as the ‘off-payroll working rules’, in 2000 - although the tax changes are only being implemented in April 2020.

It is designed to tackle “disguised” employment and although contractors don’t have a right to employee benefits such as holiday or sick pay they can enjoy a level of tax efficiency.

The new rules will largely apply to freelancers and contractors (PA)

Using contractors can benefit the employer as it does not have to pay National Insurance or provide other benefits.

If you are assessed as being “inside IR35”, HMRC sees you as an employee and you are subject to income tax and National Insurance payments despite being a contractor.

If you are “outside IR35” you will not have to pay it.

What are the tax changes?

According to HMRC there are a number of differences regarding IR35 before and after April 6, 2020.

• Before April 6, 2020

HMRC website said: “If you’re a worker and your client is in the public sector, it’s their responsibility to decide your employment status. You should be told of their decision.

“If you are a worker and your client is in the private sector, it’s your intermediary’s responsibility to decide your own employment status for each contract. The private sector includes third sector organisations, such as some charities.”

• After April 6, 2020

HMRC website said: “All public sector authorities and medium and large-sized private sector clients will be responsible for deciding if the rules apply.

“If a worker provides services to a small client in the private sector, the worker’s intermediary will remain responsible for deciding the worker’s employment status and if the rules apply.”