IR35 in 2018: what do accountants need to know?

IR35 in 2018: what do accountants need to know?

If you work with contractor clients, IR35 is a piece of legislation you will be all too familiar with. Here's what you need to know when it comes to supporting clients

If you work with contractor clients, IR35 is a piece of legislation you will be all too familiar with, and it’s been hard to escape all of the news lately. The heavily-anticipated IR35 consultation was recently published by HMRC, aiming to increase compliance for the self-employed and to ensure that contractors are paying the correct levels of tax and National Insurance. This comes just a year after the shake-up to the public sector and foreshadows the potential changes in the private sector.

The complex rules determining whether a worker is deemed a permanent employee or whether they are self-employed has long been renowned for its ambiguity and confusion. IR35 has long been a subject of difficulty for the self-employed which is why they seek extra support. As accountants, it’s our job to use our knowledge and expertise, to stay up to date with any changes and to anticipate exactly what effects these changes could have on working practices.

In light of the recent updates to IR35, many of our clients could be wondering what’s next for them. And if you’re new to the demands of contractors and freelancers, there is a lot to get to grips with when it comes to the legislation.

What’s changing in the industry?

In 2017, the government implemented a new policy which meant that, in the public sector, determining the IR35 status of a contractor fell to the end client rather than the contractor themselves. Despite the backlash as a result of these new rules, it was announced in the 2017 Budget that the government plans to extend this to the private sector.

The industry is undergoing a period of uncertainty, with the consultation of private sector reforms being the latest. The overhauls to the industry could mean that the self-employed will forgo an extent of their freedoms and could be missing out on tax planning opportunities.

What impact could these changes have on your clients?

If your client is deemed to be inside IR35, it could hinder their freedom as it means they will be unable to pay themselves through a dividend structure. They may also be limited by the number of expenses they are able to claim.

Though these changes could affect your client’s working practices, it’s important to remember that being inside IR35 will not drastically change the nature of their business and there are still opportunities for them to work tax efficiently. They are still able to claim tax relief on any expenses which are incurred exclusively for their business, can still sign up for the Flat Rate VAT Scheme and may also be able to pay any income via dividends if it is not subject to PAYE tax.

Since IR35 will only affect your clients if they are classed as self-employed, advice can be hard to come by. And as accountants, it’s our responsibility to educate clients about any new changes and how these changes could impact their working practices. Clients will look to us as their first point of contact when it comes to understanding their status – now more than ever whilst the subject is victim to so much bad press. HMRC will look how closely their working practices reflect that of a permanent employee, including the level of control, whether they can be replaced and if they provide their own equipment. The list is not exhaustive and HMRC will take each case individually, but this is a good starting point.

Unfortunately, we’re not able to control whether someone is insider or outside IR35 as this decision remains with HMRC. But our input can play an important role in determining any potentially dangerous areas and whether anything can be done to mitigate risk.

What does the future hold for the self-employed?

The changes to the industry have brought a great deal of attention amongst contractors who are concerned about how they will continue to operate in the future. As the questions continue to arise about the nature of self-employment, the support of an accountant could be paramount to the continued operation of many small companies. And whatever the future has in store, there are still ways in which clients can continue to operate with the same efficiencies.

IR35 can be a complex subject and SJD Accountancy understands how important the right support can be for contractors and accountants. To help better explain IR35 and provide the necessary support, they created their easy to understand video.

You can watch the video and download the accompanying guide on their website.

 

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