fb-pixel
News

What impact will IR35 reforms have on North Sea operators?

Avatar
Written by Caunce O'Hara
Last updated February 11, 2019

With high levels of talent engaged through off payroll structures in the energy sector, the North Sea operators will feel an acute impact when new IR35 reforms are extended to the private sector in April 2020 – impacting flexibility, skills availability and adding complexity and cost to end users.

The original off-payroll working rules (known as IR35) were introduced in 2000 to ensure that those who choose to work through an intermediary such as a personal service company (PSC) who would have been employees if they were directly engaged, should pay broadly the same in employment taxes as if they were employed.

However, HMRC contends that non-compliance with the IR35 rules is widespread and estimates that only 10 per cent of PSCs that should apply the legislation actually do so. The cost of this non-compliance in the private sector is estimated to increase to £1.3bn by 2023/24 – highlighting the significance of this to the Government.

In the Budget 2018, the Government announced intentions to reform the off-payroll working rules for medium and large organisations in the private sector from 6 April 2020 to broadly mirror the public sector rules which were rolled out in April 2017. However, where the end user of the worker’s services is a small business the responsibility for assessing the arrangements, and applying IR35, will remain with the PSC.

This change will impact businesses that engage off payroll workers who operate via intermediaries, such as personal service companies. The impact of this change should not be underestimated, and sufficient preparation will be crucial. The reform will present private sector end users with additional, and often substantial, one-off and ongoing challenges and costs.

Initially, it will be necessary to identify existing arrangements that will be caught from April 2020, which can be challenging, and to determine the additional cost that may arise as a consequence.
For example, for businesses which decide that their off-payroll workers fall within the IR35 rules, there will be increases to direct costs such as employer’s NIC (13.8 per cent) and potentially the Apprenticeship Levy where applicable (0.5 per cent).

Due to the typical make-up of the workforce, IR35 reform from April 2020 is likely to have a significant impact on the North Sea energy sector; and with green shoots of recovery being seen across the industry operators will need to carefully consider how to balance the requirements for a flexible workforce with the potential administrative and financial implications of the proposed new legislation.

HMRC has previously focused elements of their IR35 activity on workers in the oil & gas sector and the proposed changes, which will put the onus on the end user of the services to assess the arrangements, will put more pressure on the operators and will likely lead to increased scrutiny going forward. The work required to prepare for this change should not be under estimated and the sector needs to start looking at this now.

If you’d like a quote for your offshore energy contractor insurance please call 0333 321 1403


Disclaimer:

The information in this article has not been written by Caunce O’Hara & Co Ltd or any of Caunce O’Hara’s employees. None of the opinions or views contained within this article are Caunce O’Hara’s nor do we accept responsibility for any financial advice given within the article.

Caunce O’Hara & Co Ltd do not provide Life Insurance policies nor advice regarding Life Insurance or accounting and bookkeeping.



Related IR35 content

Off-payroll working in the private sector

Despite the protests and lobbying of the Government, the only reference in the Budget notes makes it very clear that…

Read more

The impact of finance sector IR35 decisions on contractors

IR35 reform to the private sector was already having a negative impact on contractors working in the finance sector prior…

Read more

Lord’s committee expresses concerns over IR35

IR35 off-payroll reform was due to be rolled-out to the private sector on April 6th of this year, but due…

Read more

Suggestions to move IR35 reforms to 2023 are rejected

Amendments to the IR35 private sector are set to go ahead from April 2021, despite suggestions from a Conservative MP…

Read more

COVID-19 and IR35: Should your clients relax now the legislation is postponed?

Steve Barclay, the Chief Secretary to the Treasury, announced that due to the effects of Covid-19 (Coronavirus), the changes to…

Read more

11th hour delay for IR35 private sector reform due to COVID-19 welcomed

The Government has delayed its controversial IR35 private sector reform by one year, until April 2021, because of the COVID-19…

Read more

No delay to IR35 rollout as the Government launches off-payroll review

The Government launched its off-payroll review on January 7th with regards to the implementation of the changes to the off-payroll…

Read more

What are the political parties saying about IR35?

In April 2020 the contractor and freelance community are set to be hit by changes to IR35 legislation which could…

Read more

Six reasons for PSCs to be proactive to respond to the IR35 private sector changes and not wait until April 2020 to do so!

Since April 2000, the Intermediaries legislation has made the individual contractor trading through his/her own Personal Service Company (PSC) the…

Read more

What impact will IR35 reforms have on North Sea operators?

With high levels of talent engaged through off payroll structures in the energy sector, the North Sea operators will feel…

Read more

Are you ready for IR35 changes?

Proposed changes to IR35 legislation could mean thousands of contractors may pay more tax. With the Government’s consultation on contracting…

Read more

IR35 and CEST Update

The IR35 story continues to rumble on taking twists and turns along the way and most of us believe it…

Read more

U-Turn on Self-employed NIC but no change to Public Sector rules on IR35

The ink has yet to dry on Philip Hammond’s first budget as Chancellor but his proposed national insurance increases for…

Read more

IR35 Products & services

Caunce O’Hara’s partnership with Markel enables us to offer a broad range of IR35-based products to protect contractors, fee-payers and end clients across the UK.

IR35 Hub Related IR35 content