IR35 – No further Delays (Expected)

Even with the backdrop of a COVID-19 lockdown HMRC have not indicated they intend to further delay the upcoming changes to the IR35 rules. With the current tax deficit so high they will likely see this as an ‘easy win’ to increase the tax receipts when the economy bounces back. This means clients and contractors have to prepare and work towards the key date of 6th April.

A lot of the work has already been done by many with the call coming to delay the legislation coming very late in the day last year. However, for the few that might have fallen behind with preparations and might have put this on the backburner with everything the last year has thrown at us, risk sleepwalking into the new tax year without being properly prepared.

We have partnered with the market leading IR35 tax specialists who can advise on everything from contract assessments, calculators & IR35 insurance.

If you are a client or candidate and unsure about anything IR35 related, then please reach out to us today and we can put you in touch with experts who can help.

IR35 Basics

What is IR35?

IR35 or the Intermediaries legislation was designed to combat what HMRC saw as tax avoidance by “disguised employees”.

What is a disguised employee?

Essentially a worker, who if it was not for the fact that they operate through a limited company, would be deemed an employee based on their relationship and working practices with their end client.

Who does IR35 affect?

Contractors operating through their own Limited company, recruitment agencies and end clients.

When does IR35 apply?

The IR35 should be applied to every new contract and contract extension.

What does it mean to be caught by IR35?

If “caught” by or “inside” IR35, a contractor is a “disguised employee” and will pay tax as an employee.
If “not caught” or “outside” IR35 a contractor is deemed to be in business in their own right and a business to business relationship exists.

How is IR35 determined?

There are three key employment test areas to consider, along with becoming part and parcel of a client organisation

Personal Service

“Personal service” exists if a worker is required to attend and they do not have the ability to send someone else in to carry out the work instead of them “Personal service” exists if a worker is required to attend and they do not have the ability to send someone else in to carry out the work instead of them.

Control

This is a measure of how much “control” the end client has over where, when and how the work is performed.

Mutuality of Obligation (Moo)

“Moo” exists where an end client has to offer work to an individual under the terms of a contact and the individual has to accept it.

Who determines IR35?

Currently contractors working in the Private sector carry the responsibility to determine the IR35 status of their contacts and are ultimately responsible for ensuring that the correct Tax and NI is paid.
Since April 2017 the rules have been different in the Public Sector. Responsibility for determining the IR35 status sits with the Public Sector body engaging the worker. If the contract is deemed “inside” IR35, then the party paying the Limited company, the “fee-payer”, must tax the contractor at source as they would an employee on their payroll.

What is changing?

Draft legislation has been issued that changes the rules in the Private sector from April 2021. The key changes are:

• IR35 status determinations will be the responsibility of the end client if they are deemed to be “medium” or “large” in size
• If the end client is “small” under the definition of the Companies Act 2006, then the contractor retains the responsibility to determine their own IR35 status
• If the end client is responsible for the status determination the statement with reasons, must be passed to the worker and the agency that the end client contracts with
• The worker and/or agency have the right to appeal the status determination
• The end client has 45 days to consider the appeal, either re-affirming their original decision or issue a new statement with reasons
• If found to be “inside” IR35, the fee-payer in the supply chain must ensure that the correct Tax and NI is deducted before paying the contractor
• If “inside” IR35 the 5% allowance, historically given to cover the costs of operating a Limited company, will be lost
• If “outside” IR35, the fee-payer can continue to pay the contractors invoice without deduction

Please connect with us info@cinqpartnership.co.uk for any advice around these topics.