In 2020 the Government will change the way contractors and freelancers are taxed via changes to the IR35 tax legislation. Currently IR35 is essentially two sets of legislation that apply to freelancers and contractors who are not employed by a public sector organisation, but work solely for them over  long  periods  of  time.  Instead  of  individuals  being  able  to  submit  their  tax  return  through  a limited  company,  they’re  instead  taxed  by  the  company  they’re  working  for  as  the  Government deems them to be an employee.

 

Changes coming in 2020 will have an impact on both freelance white collar operational positions and commercial staff, as the Government aims to remove any tax advantages.

 

How is IR35 changing in 2020?

 

The Government feels that there are too many individuals working outside the rules through limited companies, when they’re not actually running their own business. To remove the tax advantages freelancers  and  contractors  can  benefit  from,  the  IR35  tax  legislation  is  being  extended  to  the private sector.

 

Every  private  company,  excluding  small  companies,  will  be  required  to  consider  whether  their contractors  and  freelancers  are  actually  employees.  They’ll  need  to  assess  their  status  on  a number  of  different  factors,  and  if  they’re  deemed  to  be  an  employee  then  the  company  must deduct National Insurance Contributions and income tax from their pay, plus pay their own NICs. It puts the emphasis on the company rather than the individual to ensure they’re compliant.

 

How  will  IR35  changes  impact  contractors,  freelancers  and  limited companies?

 

Reduced  Earnings  –  The  reason  many  freelancers  and  contractors  are  advised  to  set  up  a limited company, even when working for just one client, is because of the tax advantages. Without those advantages this will potentially reduce your earnings. The Government claims that you are essentially  an  employee,  so  you  should  be  taxed  as  such,  even  without  the  typical  employee benefits  such  as  sick  pay  or  a  pension  contribution.  The  change  in  legislation  is  expected  to generate over £1billion, making it a key initiative from the Government.

 

Changes  To  Your  Tax  Return  –  It  could  make  tax  return  season  a  little  more  difficult!  For example, if you’re an Estimator working primarily for one client you might be taxed directly under the IR35, however you may also do work for other clients. Before you could consolidate all your earnings in to one tax return however now you may be taxed through the client and be required to submit a separate tax return for other earnings. If you do only work for one client though, this could be beneficial for you as it should stop the need for you to submit a return.

 

Talent Shortages – Critics of the scheme have suggested that the new legislation will lead to talent shortages within the industry, particularly in white collar operational roles. The thinking is that individuals who were used to making more money and paying less tax will consider roles abroad rather than working on projects in the UK.

 

Fines For Non-Compliance – The changes impact the clients you’re working for, as there are fines  for  non-compliance.  Instead  of  an  individual  assessing  their  own  employment  status  when

 

submitting their tax return, private companies will be required to use the CEST tool to assess how they should tax each individual.

 

Projects  Halted  –  Another  concern  about  the  introduction  of  the  IR35  tax  legislation  is  that companies may decide to put construction contracts on hold as they work out how to balance out the additional costs.

 

There’s no doubt that the changes to the IR35 tax legislation will be a disruptor in the construction industry.

 

If you’re a contractor in the construction industry and you’re looking for a new opportunity then get in  touch  with  CNM  Recruitment.  We  specialise  in  construction  recruitment  and  cover  the  broad spectrum of temporary, interim, permanent and contract roles. Call us on 01274 945800 or email enquiries@cnmrecruitment.co.uk and we’ll be