Introduced in 2000, IR35 is an anti-tax avoidance rule that applies to all contractors and freelancers who do not fall under HM Revenue & Customs’ definition of being self-employed.

As a result of changes introduced in last year’s Budget, from April 2020, every medium and large private sector business in the UK will become responsible for setting the tax status of any contract worker they use.

Donald McKinnon, Wylie & Bisset managing partner, said: “Post-April 2020, private sector employers will be held responsible for determining whether IR35 applies to any contractor they hire – which would require them to treat the contractor as an employee for tax purposes – as is already the case in the public sector.

“Private sector businesses will, therefore, be forced to decide whether or not to continue to treat contractors as contractors and risk a hefty fine if HMRC takes a different view, or to treat them as employees, with all the additional costs and responsibilities this involves.”

Catherine McManus, Wylie & Bisset’s tax partner, added: “These changes will force organisations to think carefully about staffing requirements and flexibility in the workplace as they may feel compelled to enlist an “always employed” culture where before they might have sought out contractor skills as and when required.

“This, coupled with shifting the compliance burden up the supply chain, will not only impact their ongoing tax burden, but cashflow. In the very worst cases businesses could find themselves facing unforeseen financial difficulties which jeopardise their continuation.”

The team at Wylie & Bisset suggests that, by taking the appropriate steps, both contractors and businesses can ensure that they do not fall foul of IR35.

Mr McKinnon said: “If you are a contractor, it is important that you can show that you are in business on your own account and therefore not an employee.

“And if your business hires contractors, you should review your relationships with them to ensure they don’t fall inside IR35. You will need to issue a Status Determination Statement to your contractors, which makes their IR35 status clear and explains why.

“Provided you support your decision with sufficient evidence and file the appropriate tax documents, you should avoid penalties. Where reviews are required or where businesses fall into financial difficulties, we would urge them to seek early assistance from advisers, which is where Wylie & Bisset can help.”