New IR35 Rules Hitting Construction

Monday November 11, 2019

With words like “disaster” and “massive error of judgement” being thrown around last year over the new tax rules for public sector off-payroll, payments, it’s no surprise that there’s some nervous twitching going on ahead of the scheme’s private sector roll-out in April. Under the new system, it’ll soon be contractors themselves who are responsible for working out which of their workers are legitimately self-employed.

Why are HMRC introducing this?

The idea is, as ever, to tighten the thumbscrews on tax dodgers who claim to be self-employed when their working conditions mean they should be on PAYE. The trouble with dumping these coin toss calls onto contractors is the same as it was when it happened in the public sector: they’re simply not geared up to do it well. With public bodies, this led to a lot of blanket judgements being made in an attempt to “play it safe”.

That, in turn, meant a number of legitimately self-employed workers arguably being wrongly taxed as PAYE employees – with the knock-on effect of many swearing off public sector work altogether.

What will the impact be?

With the new system kicking in next April, the UK construction industry is already bracing for impact. Some large contractors, for example, are reportedly actively pressuring workers operating through personal service companies to shift onto the PAYE books. Obviously, this move is turning out to be pretty unpopular with freelance workers, who are concerned about the extra tax hit they’ll be taking and whether or not they’ll be getting full employment rights.

On top of that, it can be a pretty serious upheaval to change employment status overnight, and there’s a danger of some hasty decision-making on both sides in response. Adopting a one-size-fits-all approach to employment status checks might minimise the risk to the contractor of falling foul of the regulations, but we’ve already seen the damage it can do to workers. On the other hand, that risk can be dumped onto employment intermediaries like agencies or umbrella companies – with all the additional concerns that can raise. Pushing workers in the direction of umbrella companies, for instance, could lead to a worst-case scenario where they’re taxed like employees but lack basic employment rights and benefits.

What do I need to do?

Right now, with the new rules still months away, major construction firms are in the process of working out which freelancers need to be “steered” into full-on employee status. Proper employment status checks take time and care to get right. For most workers, it’s expected that people not already caught up in IR35 shouldn’t have much to worry about. The way the checks are made isn’t actually changing. It’s just the responsibility for getting them done that’s being moved. Of course, that won’t do much to calm or reassure people who suddenly find themselves being lumped into an unfamiliar category, so some resistance wouldn’t be a huge surprise there.

Talk to RIFT if you’ve got any worries about the new rules, or think you’re being pushed in the wrong direction by a contractor. We’ll quickly let you know where you stand, and help you get your status sorted. Meanwhile, keep your head, avoid snap decisions and listen out for more Voices from the RIFT…

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