If you provide your services via an intermediary, such as a personal service company, you need to make sure that you are well versed about the changes coming to IR35 on 6th April 2021.
What will change for you?
In short, the responsibility for determining whether or not you are working inside or outside of IR35 legislation will shift from your PSC to the end client.
If you are deemed to fall inside the new legislation then the responsibility for deducting your tax and national insurance contributions will switch to the fee payer, this could be a recruitment agency such as Employment Solutions.
How will pay rates be affected?
If an assignment falls “inside IR35”, the take-home pay will be less as we have a statutory duty to deduct the appropriate tax and NICs. Employers’ NICs from an agreed rate, as this would constitute an unlawful deduction of wages. However, recruiters can review and renegotiate rates to factor in the additional costs of supply, such as employers’ NICs, but this must be evidenced in a reissued contract/schedule.
Historically, PAYE rates have always been lower than PSC rates. However, some contractors may try to negotiate a higher fee to offset their tax and NICs, we advise that you assess the criticality of the contractor workforce when reviewing rates and margins.
How does this affect your current and future contracts?
If your current contract is due to run beyond April 6th 2021, it is the responsibility of the end client to determine your IR35 status prior to this date.
If you are deemed to fall inside IR35 the client may need to change your contract to make sure that you are compliant with the new legislation.
For any contracts starting on or after 6th April 2021, your IR35 status will need to be assessed prior to your the start of your contract. The end client is obligated to tell you the outcome of this determination. If the client deems that your contract falls inside IR35, you will have a right to appeal the decision in writing within 45 days, after which the end client would have to consider the reasons for the dispute and decide to uphold or change their decision.
How does this affect contractors who work for several different clients?
The off-payroll working rules will still apply irrespective of how many clients and assignments a contractor is working on. Where a contractor is working on multiple projects for various clients, and is not financially dependent on anyone client, then this is evidence that they are in business on their own account as an independent contractor, which supports an “outside IR35” assessment, forming part of the overall picture.
However, IR35 status is assessed on an assignment basis.
How do you determine IR35 Status?
When a worker falls outside IR35, they are deemed to be in a genuine business of their own. They would not be affected by IR35 legislation.
When a worker is deemed as inside IR35, they could be classed as a 'disguised employee' (HMRC Term), and the IR35 legislation states that they must pay the same tax and national insurance contributions as PAYE employees.
HMRC has developed and built an online tool called CEST to help contractors and end-users assess tax status. This tool has proven controversial (And at one point didn't work), several other determination products can be used to provide a determination online.
Employment Solutions are working with our clients to ensure that all of our contractors are informed of this process. These changes will be for existing contractors and future contractors working as of April 6th, 2021.
There are a series of tests that can be used to determine IR35 status you can view these by clicking here
Is anyone exempt?
If you provide services to a small company in the private sector as a contractor, you will remain responsible for deciding your own IR35 status.
A company is classed as small if it meets 2 or more of the following criteria:
Their turnover does not exceed £10.2 million
Their balance sheet total is no more than £5.1 million
They have less than 50 employees
What is the “2-year rule” and does it apply to IR35?
The 24-month rule is in reference to claiming travel and subsistence expenses using a contractor’s home or office as their main working location and the client site as a temporary workplace. This rule has no bearing on the IR35 status of an assignment.
The “24-month rule” applies to travel and subsistence tax allowances under S339 (3), (5) and (6) of ITEPA 2003. Travel and subsistence allowances are relevant if an assignment is “outside IR35”. If an assignment is “inside IR35” then the contract workplace is deemed to be a permanent workplace, meaning there is no expense allowance.
Even when a contractor attends a client workplace for more than 40% of their time (called a period of continuous work), for example, the standard five-day working week, it will be a temporary workplace if the overall assignment is for less than 24 months. However, if the assignment lasts more than 24 months then expenses are no longer tax-deductible.
If an assignment is likely to last more than 24 months, then expenses are not allowed from the time when the parties knew it was likely to extend over 24 months. For example, a contract of 17 months is extended for 12 months. No travel costs and subsistence will be tax-deductible from the start date of the extension not from the 24-month anniversary.
Looking for advice on IR35?
Whether you are the end client engaging with contract workers, or a contract worker providing your services through a PSC, Employment Solutions can help. If you would like to discuss IR35 and how you think it may affect your business, please get in touch today. You can call us on 0161 839 5353 or fill out the form below.