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Updates to the UK’s IR35 legislation are nearly upon us, which makes now the perfect time to take stock of how the changes may impact individuals and organisations throughout the construction sector. With the current working population comprised of around 15% self-employed workers, the freelance and contract workforce has steadily risen in recent years, particularly within the construction sector under the Construction Industry Scheme. And while IR35 changes aim to ensure this self-employment is legitimate, will the legislative update be a positive change for the building, civil engineering and trades and labour market?
Whether you’re a contract worker, permanent staff member or an employer, the April update will likely be felt throughout your industry. Here’s what you need to know:
Anyone who has ever been a contract worker – or who has enlisted the services of contractors – should already be familiar with IR35. The tax legislation originally came into effect in April 2000 and was designed to differentiate between workers who were genuinely contractors and those who were working as disguised employees in order to generate tax benefits. The legislation has long suffered from a lack of clarity, with ambiguity surrounding the guidelines on employment status creating opportunities for contractors to take advantage of tax benefits. This led to the HMRC rolling out changes to the legislation, which took hold within the public sector in 2017 and are now due to be implemented in the private sector from April this year.
The HMRC has targeted the construction industry’s treatment of contract workers before. In 2019 it launched a consultation document into the issue of “false self-employment” within construction, proposing that all CIS registered workers should be subject to normal PAYE conditions, unless they met one or more special conditions.
The IR35 changes are largely concerned with shifting the responsibility for determining tax status away from contractors themselves and onto businesses engaging contract workers. Currently, contractors can determine their tax status, but from April this onus will be on businesses. It’s hoped that the change will close the tax avoidance loophole that many contractors have taken advantage of and result in less lost revenue for the HMRC. However, it does mean businesses now have more considerations when engaging contractors, as making the wrong IR35 assessment may result in company fines. Small businesses will not be affected by the changes as the previous IR35 rules will still apply to certain companies.
The likely impact of IR35 on companies is that some may be more cautious about taking on contract resource, however there will still be demand for a mix of contract resource and permanent staff, particularly within the project-based construction industry. Businesses should review their current contractor arrangements and consider how IR35 changes will impact projects and contracts in the future, conducting conversations with existing contractors to ensure everyone is aware of the potential impacts. Some businesses may see the advantage of hiring more salaried staff instead of temporary workers, so if you are a contract construction professional considering moving to the permanent side, now could be a perfect time to explore this opportunity.
It is expected that some contractors will be deemed to be disguised employees under the new legislation, which will result in more contractors having tax and National Insurance contributions deducted from their pay. Construction contractors, including those CIS contractors, should arm themselves with as much information about IR35 as possible to give them a better understanding of how they will be impacted, particularly when it comes to selecting the next contract. Contractors who are aware of the legislation and have been using IR35 correctly in the past should have nothing to fear with the changes, although anyone with questions should seek professional advice to ensure they are prepared for the April update. PSR Solutions has put together a helpful IR35 overview to help you get to grips with this.
While the industry is likely to feel some impacts of IR35 changes, there will be plenty of opportunities for building, engineering and trades and civil engineering professionals to find their next role, whether that’s as a contractor or in a permanent position. View our latest building jobs here or take a look at opportunities in civil engineering and infrastructure or trades and labour.
Listen to episode 3 of Inspire Podcast for an easily digestible run through of IR35.
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