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The government has taken steps to bring the private sector under the IR35 rules. The proposal is now in the consulting department and if it gets implemented, the businesses that are engaging the individuals to offer their services through, the company would be responsible in deciding on whether the IR35 rule applies or not. Right now, as per the current law, the private sector business that hires an individual through a UK intermediary does not have to pay any pay-as-you-earn (PAYE) or National Insurance Contribution (NIC) liabilities if there is a contract signed between the parties.
Introduction to IR35
The individuals will always look to offer their services via a personal services company. This way the individual will save tax by paying just the dividends and not salary. This is what prompted Her Majesty's Revenue and Customs (HMRC) to introduce the IR35 rules. The IR35 rule comes into force when an individual offers personally provided services through an intermediary and:
If the IR35 rules apply, then the business will be responsible for the pay-as-you-earn (PAYE) tax and national insurance contributions (NICs) of the individual’s fees.
What will happen when Private Sector IR35 rules are brought into force?
If the IR35 rules are brought into effect in the private sector, then both the public and the private sectors will be on a level playing field. There will be significant implications in the private sector and the companies need to make more investments on time and the cost. The public-sector companies can be taken as a guideline to learn how to make use of the IR35 correctly.
The issues that were faced by the public-sector companies are:
Preparation needed by the private sector
The private sector that involves individual labor through intermediary should be making certain preparations in order to ease the new IR35 rules into their system.
There needs to be a thought given to the changes that must be included in the contracts with the intermediary