IR35: are you prepared?
Changes due to come into place in April which will affect the superyacht industry…
With changes to IR35 due to come into place 6th April, we investigate how this will affect the superyacht industry and what it needs to do to prepare.
In the UK, HMRC’s IR35 ‘off-payroll’ legislation is due to be rolled out to private sector contractors. The legislation first came out in April 2000 with the intention of preventing workers from declaring themselves as a freelancer in order to pay less tax by assessing whether or not contractors count as employees or not when taking on work for clients.
“IR35 isn’t a new thing. However, the legislation that governed self-employed workers and how they are taxed changed around five years ago for the public sector and now those same changes are coming into place in the private sector”, explains James Ward, managing director of Marine Resources. “Before, if you worked for yourself you were liable for paying your taxes and National Insurance correctly. Now, after 6th April, the liability falls within the company who need to run certain assessments on every type of role that they are using contractors for.”
It will be in the hands of companies to assess whether contractors need to pay income tax and National Insurance contributions. Medium and large private sector businesses will need to apply IR35 rules if they meet two or more of the following conditions:
- An annual turnover of more than £10.2m
- A balance sheet total of more than £5.1m
- More than 50 employees
So if a company falls under this, how does it approach this change in legislation? “It’s fairly simple criteria to review,” explains Ward. “Firstly, is someone within the company directing or managing them? Secondly, if the contractor is ill, can they send someone to replace them? Finally, is there a mutuality of obligation? Is the company obliged to offer the contractor work? If all of those things are there then it falls under IR35 and the hirer has to declare it. Any company that is manufacturing products, building boats or refitting could be affected, as well as the contractors that work with them but also yachts that are registered as a business in the UK that use contractors for a refit or brought on extra crew for a charter, for example.
“If a contractor is deemed to be inside IR35 then they would have to pay tax and National Insurance in the same way as the company’s employees. Previously they would work through a limited company and fill it all out in a tax return at the end of the year. Now contractors will have to pay weekly or monthly which will seriously impact their take-home pay. Thinking about the impact on a company, there will be a bit more admin to assess these roles. Companies are panicking and its actually not as bad as people think, you assess the role, not each individual working in the role.
“It is a big shake up” - James Ward
“For example, if you took a shipyard that hires a team of 50 laminators to bolster their work force for a six-month period” he continues. “If they are told what their hourly rate was, what time to start and finish and are managed by someone in that shipyard, all they would have to do is assess the one laminator role, not the 50 individuals.”
There is a tool available on the UK Gov website that can help calculate whether a company complies. Companies such as Marine Resources can also manage this process.
This change in regulation could bring significant change to contractors working within the superyacht industry. “It is a big shake up” he says. “It affects salary to the point where now there’s a lot of contractors who are putting up their rates to allow for the drop in take home pay. If a contractor is employed by themselves as a limited company, they often pay themselves a relatively minimal salary to avoid higher tax and National Insurance and then pay the rest in dividends, which is at a lower rate. Under this IR35 they will now have to pay tax and National Insurance on all their earnings.”
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