Quite possibly the most pressing question weighing on the mind of contractors and HR departments, is after April 6th, who assumes responsibility for IR35 […]Continue reading
Quite possibly the most pressing question weighing on the mind of contractors and HR departments, is after April 6th, who assumes responsibility for IR35 compliance under the Off-Payroll tax rules in the private sector, and what does that mean?
Over the past few years, worldwide, there has been growing government action against contractors and how they are taxed. A lot of other countries are already ahead of the UK in terms of clearly classifying contractors for tax purposes.
As it stands, the contractor’s limited company is currently liable for assessing the employment status of its’ workers. However, the new IR35 changes are set to hold the end-user / fee payer liable.
So who will be affected by the IR35 changes?
Essentially any business in the UK that utilises contract workers paid through PSCs (personal services company) or other channels, that are classified as medium or large organisations.
The HMRC gave guidance in February and indicated that there were four steps or conditions that need to be satisfied, in order to determine whether IR35 is relevant:
This refers to whether the contractor is personally required, or obligated to perform their duties themselves. If they aren’t and anybody can be sent as a replacement, therefore it is an output-based contract, then IR35 generally would not apply.
This refers to whether the organisation in question operates in the public sector (for example a university or Transport for London), or is a small company.
You will be considered a small company if at least two of the following apply:
• turnover of £10.2m or less;
• £5.1m or less on its balance sheet; or
• 50 employees or less
If you are operating in the private sector and less than two of the above criteria apply, then IR35 could apply to you.
In order for IR35 to be relevant, your contractor needs to be operating their own Personal Services Company. Therefore, IR35 doesn’t apply if they are a normal PAYE employee, a sole trader or operate through an umbrella company.
This is an employment law test that assesses whether a contractor acts and is treated as an employee, based on a number of factors. One of which includes control, which refers to how the work is carried out and whether it’s on a time or output basis. It also takes into account mutuality of obligation and personal service.
HMRC have stated that as long as the CEST tool is used correctly, with accurate information and in line with their guidance, the determination won’t be challenged. However, if HMRC believes that your IR35 determination is wrong, they can open an investigation, therefore it’s important to keep accurate, up to date records.
If you’re an ‘end-user’ who isn’t sure how to assess whether your contractors are inside or outside IR35 – we can help. We’d be more than happy to discuss your situation over a cup of coffee. If you’re interested in setting up a meeting, please email us on: firstname.lastname@example.org
Author: Melanie Beckham
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