Despite IR35s inception nearly two decades ago with the aim of preventing ‘disguised employment’, the Government still believes contractors continue to abuse the system – to the extent where they believe just one in ten contractors who ought to be operating inside IR35 actually are.
Since 2017, in the public sector, the client became responsible for administering IR35. As a part of this reform, the liability for paying the tax also transferred from the contractor to the fee-payer, which is usually the recruitment agency in the supply chain.
As of 6th April 2020, these rules will be rolled out in the private sector, with medium and large businesses placed in charge of setting the IR35 status of contractors. When working with a company that HMRC considers ‘small’ in the private sector from April 2020, contractors will remain responsible for setting their IR35 status and all of their taxes.
HMRC defines a small company as one which does not exceed two or more of the following criteria; an annual turnover above £10.2 million, a balance sheet total over £5.1 million, or more than 50 employees.
IR35 reform is considered controversial because clients are largely inexperienced with regards to making status decisions. Often in the public sector, this resulted in inaccurate IR35 assessments as public sector bodies made decisions with the view of protecting the liability that they now carry.