IR35 Advice for clients
Does your business use contract workers who provide their services via personal service companies (PSC) or other intermediaries? If you do, you need to know about the implications of the changes coming to IR35 on 6th April 2021.
For an overview of IR35 click here.
What changes for the end client?
What happens if a client doesn't understand or ignores the new IR35 rules?
How do you determine IR35 Status?
What happens if HMRC determine the worker as inside IR35 and the end-user doesn't?
What happens if the agency and the employer do not agree on a status determination?
The draft legislation imposes an obligation on the client to provide a “client-led status disagreement process”, either the recruiter or the contractor may disagree and follow the process. The client must respond to a request to review the status determination statement within 45 days.
The client must either confirm that the determination is correct, with reasons or provide a new status determination statement reaching a different conclusion and withdraw the previous one. If you disagree with the client’s determination, the agency will need to write to the client and give reasons why. The recruiter will need to ensure they keep records of status determinations and any corresponding disagreements. During the dispute process, the client’s status determination stands
Is anyone exempt?
The new IR35 changes will affect all public sector clients and medium and large private sector clients only – “small” private sector businesses are exempt. The definition of “small” is based on the s382 Companies Act 2006 definition.
The existing off-payroll working rules will continue to apply for assignments if the client is a “small” business, meaning the responsibility and liability for making the status determination and deducting the appropriate taxes and NICs remains with the PSC.
A company qualifies as “small” if two of the following conditions apply:
- 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
HMRC’s review, published on 27 February, confirmed that the final legislation will include a legal obligation on the clients to confirm their size when asked by an agency or a worker.
Does it apply to clients based outside of the UK using UK based contract workers?
IR35 applies where the worker is operating through a UK limited company, irrespective of the location of work. HMRC’s review, published on 27 February, clarifies the position on overseas clients. Where the client is based wholly overseas, with no subsidiary or presence in the UK, the new off-payroll working rules will not apply, and the obligation to determine tax status falls back on to the contractor’s limited company
What are the options if the worker falls inside IR35?
If an assignment is determined as “inside IR35”, there are various alternative engagement models to an off-payroll model:
PAYE payroll (agency workers) - Where a recruitment company contracts directly with the worker and operates tax and NICs under agency rules and provides the workers with worker rights, IR35 off-payroll rules do not apply. If you do decide to engage workers directly, AWR applies and the Swedish derogation will be abolished in April 2020.
Umbrella Company - Where an umbrella company employs the worker directly, the off-payroll working rules do not apply. Some umbrella companies do not employ the worker directly and use intermediaries, so ensure that this is checked as you may unwittingly enter into a PSC contract where the off-payroll working rules will apply.
“Inside IR35” PSC – Should you wish to continue to engage a contractor who is deemed “inside IR35” via their PSC, you will need to calculate a ”deemed employment payment” using the RTI (Real Time Information) payroll system. The deemed employment pay rate is the income of the worker after deductions, including both employee and employer NICs and the Apprenticeship Levy. Neither worker rights nor stakeholder pension rights apply.
Can you make a blanket determination?
One of the biggest issues to arise from the public sector reform in April 2017 was blanket “inside IR35” determinations. This resulted in a large number of contractors being moved into umbrella arrangements. It became clear that such a blanket assessment would not meet the statutory obligation to take reasonable care when making an IR35 status determination. Clients can take a role-based approach if they have a number of contractors working on the same contract on similar terms and conditions.
Employment Solutions And IR35
Employment Solutions has worked hard to ensure that we have a process in place ready for the changes to go live on April 6th 2021 so that all of our PSC workers remain compliant.
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