June 13, 2016
A consultation has been launched with new proposals to shake up the IR35 regime. Thankfully, it’s not quite as bad as it seems (at least for the majority of media companies).
IR35 is the tax legislation that governs situations when contractors and freelancers are engaged via personal service or loan out companies. Such arrangements are used frequently by media businesses. The IR35 regime was introduced in April 2000 and was intended to enable HMRC to recover lost employment taxes and national insurance contributions from these types of contracts. It’s fair to say that it has never worked that well and HMRC has long been keen to crack down on what is seen as widespread abuse of the IR35 system and a resultant non payment of tax.
Current IR35 law enables HMRC to recover lost taxes from the personal service/loan out company if the relationship between the service provider and the end user client is deemed to be a disguised employment relationship. However, the new proposals would mean that the end user client would have the responsibility for operating the IR35 regime and paying the correct tax rather than this responsibility just resting with the individual or personal service/loan out company.
There is one very important caveat though with the new proposals. The new responsibility is intended to only apply when services are provided to public sector entities and there does not appear to be any proposal at this time to make changes to how IR35 operates in the private sector. The vast majority of media companies can therefore breathe a big sigh of relief. However, if the changes end up working well, it wouldn’t be that surprising to see them rolled out more widely. Sadly though for the BBC and Channel 4, they will be regarded as public sector entities so such arrangements are likely to become much less attractive for these broadcasters in the future.
The deadline to respond to the consultation is 18 August with the proposed changes due to come into force from April 2017. See the link below for more details.