The IR35 rules were originally introduced in 2000 with the intention of ensuring that individuals who are working like employees but who operate via an intermediary, such as a personal service company (PSC), pay broadly the same tax and National Insurance Contributions (NIC) as an employee would.
The IR35 rules have, however, been largely ineffective as the PSC has had to ‘self-assess’ whether the rules apply. HMRC estimate that there is widespread non-compliance which they have been unable to effectively tackle which will result in lost tax and NIC revenues of £1.3bn by 2023/24 in the absence of change.
The reform will place the burden for determining whether IR35 applies onto the private sector end user of the worker’s services, where they are a medium and large businesses, from 6 April 2020. Where it is determined by the end user that IR35 applies, the fee payer (which may be the end user themselves or another third party) will become responsible for accounting for and paying the related tax and NIC, including the additional cost of employer’s NIC, to HMRC.