Do you know your IR35 status and what to do next?

Donald McNaught

Donald McNaught

Restructuring Partner

06 January 2020

Following on from the 2017 off-payroll reforms in the public sector, workers in the private sector who provide their services via limited companies might be wondering what the future holds after April 2020 – the date on which proposed changes to IR35 for private sector workers come into effect.

What is IR35?

IR35 is an anti-tax-avoidance rule impacting contractors and freelancers who don’t meet HMRC’s definition of self-employment. Implemented in April 2017 for the public sector, it is a move designed to tackle the ‘disguised employee’, who fulfils a permanent position within a company but doesn’t pay corresponding income tax and National Insurance contributions (NICs).

Instead of contractors themselves being responsible for determining their IR35 status, this obligation has been handed to the employer. As a result, where a worker is deemed to be ‘inside IR35’, the employer then deducts employees’ NICs and tax from the contractor’s pay, as well as paying employers’ NICs. However, those who agree to work ‘inside IR35’ contracts won’t be compensated with the employment rights that their status warrants.

What is the current situation?

There is a lot of discussion centring around the implications of the changes and the likely attitude of employers, agencies and the workers themselves. Each of these groups are affected in different ways, but all with a common outcome.

Indeed, there is even some prospect of the legislation being revisited now we have a new government, coupled with a level of campaigning against the reforms. With many employers and agencies having already changed their policy on using Private Service Companies (PSCs) it appears that the direction of travel is unlikely to change now the tightly wound spring has begun to unwind.

Some observers think HMRC are pushing workers into PAYE positions or umbrella solutions while others believe a limited company solution, if deemed IR35 compliant, will continue to work.

If you do nothing, then you may find yourself in a difficult financial situation. For workers who operate through a limited company it may well be worthwhile considering alternative options now.

Winding up your PSC through a Members’ Voluntary Liquidation (MVL) may be the best solution to deal with your company in a formal and definite manner, with the added benefit of being tax efficient.

Our dedicated Contractor MVL service has worked with many affected contractors across the UK who may have been retiring, leaving contracting, or moving overseas. You can commence the liquidation process from anywhere in the world and most of our contractors have benefited from early cash distributions, which have assisted them often when other regular earnings have stopped or reduced.

Contact us

More information about how this process works is available on our dedicated Contractor MVL portal, or contact me or a member of our experienced restructuring team to chat through your personal circumstances.