Businesses Not Prepared For IR35 Tax Reforms

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A poll by recruitment firm Hays appears to show a lack of awareness about preparedness for next year’s new IR35 tax reforms for medium-to-larger private sector organisations.

What Is IR35?

The IR35 tax reform legislation, set to be introduced in April 2020 is designed to stop tax avoidance from ‘disguised employment’, which occurs when self-employed contractors set up their own limited company to pay themselves through dividends (which are not subject to National Insurance). IR35 will essentially mean that, from April 2020, medium-to-larger private sector organisations could become responsible for determining the tax status of any non-permanent contractors and freelancers their organisation hires. Also, the tax liability will transfer from the contractor to the fee-paying party i.e. the recruiter or the company that directly engages the contractor.

The idea for the introduction of the legislation dates back to 1999 with Chancellor Gordon Brown and Chancellor Philip Hammond introduced IR35 for public bodies using contractors from April 2017.

Not Ready

The Poll by Hays, involving the views of 31,598 UK-based individual employees and employers showed that only 43% of respondents in organisations to which the new legislation would apply said they have begun preparations, and one fifth said they have not.

A study by the Association of Professional Staffing Companies (APSCo) in the summer also showed that only 39% of agencies polled believed that most of their business clients were even aware of the incoming changes and that only 12% thought that their clients are actively preparing for IR35.


The main worries expressed about the introduction of IR35 by the 24% who were aware of its imminent introduction are that it could bring more costs and responsibility (68%) and could mean that they lose key talent from their organisation because of its introduction (56%).

Many organisations also fear the complexity and potential administrative burden of IR35.

Man Wins £240,000 In IR35 Appeal

IR35 was first introduced in the public sector, and there was news this week that a former Department for Work and Pensions (DWP) worker (from 2010 to 2015), Richard Alcock, won a £240,000 appeal against HMRC after an IR35 tribunal. It had been alleged by HMRC that Mr Alcock, who had used his limited company RALC Consulting Ltd to engage in contracts with the DWP, owed more than £200,000 in unpaid taxes because he was working on an equivalent basis to full-time staff, and should pay the same rates of tax and national insurance (under IR35). Mr Alcock was, however, able to show that because (in his case) there had been no minimum obligation to provide work and no ability to charge for just making himself available for work, he couldn’t be an employee.

What Does This Mean For Your Business?

There does appear to be some complexity in IR35, and businesses may be right to fear that this could lead to more costs and admin and could cause complications in an organisation’s relationship with trusted contractors who may work very effectively within that organisation.

Many business owners may also feel that not enough has been done by the government to raise awareness of the changes and to educate businesses and contractors about the implications and responsibilities of IR35.

Nevertheless, the clock is ticking on the introduction of IR35 for medium-to-larger private sector organisations, and these organisations now need to make sure that they progress as quickly as possible with IR35 preparations.

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