The UK’s IR35 has bothered the business community and tax experts since the year it was passed. Her Majesty’s Revenue and Customs introduced IR35 in 2000 with a reform implementation in 2017 and again this year in April. The new reform aims to bring the private sector in line with the public sector.
What is IR35?
IR35 is also called the off-payroll working rules. It is government legislation designed to help differentiate legit independent contractors from those posing as employees. As mentioned before, HMRC introduced IR35 in 2000 to intercept contractors at work full time through their PSC (Personal Service Company) to get tax advantages.
The IR35 working rules
The IR35 working rules apply if a worker (contractor) offers their services via their limited company or another intermediary to the client.
Usually, the intermediary is the worker’s service company but may include one of the following:
- A partnership
- A personal service company
- An individual
Changes from 6 April 2017
Public authorities are responsible for deciding whether the rules are applicable where their contracted workers provide services via their intermediary.
Changes from 6 April 2021
All public authorities, medium, and large-scale clients outside the public sector are now responsible for deciding if the rule applies.
If a worker provides their services to a small client beyond the public sector, their intermediary has to decide their employment status and if the rule applies.
What do you need to do according to the new changes?
Check your current workforce.
It includes those employed via employment agencies.
- Check for people who provide their services through their limited company (personal service company) or intermediary.
- Devise a system to identify people in the future who work like this.
Converse with agencies and people you with
- You might need some information from them.
- Share the contractor factsheet with your contractors so they understand how the law works.
Ascertain that the IR35 rules apply
- Inspect if the rules apply to a contract that stretches beyond, starts on or after 6 April 2021.
- Ascertain who should be responsible for employment determination in your company.
- Take the help of HMRC’s Check Employment Status for Tax (CEST) service to make your determinations.
- Determine the status.
Once you have determined if the rules apply
- It would be best if you informed the contractor and agency you are engaged with about the status
- Use the Status Determination Statement (SDS) to tell them.
Who will manage PAYE?
- Check if you or any will be managing PAYE.
- If you’re the one managing PAYE, you need to create a system to ensure accurate Income Tax and employee National Insurance contribution gets deducted for engagement within the rules from 6 April 2021. You are also in charge of paying employer National Insurance contributions and Apprenticeship Levy, if relevant.
You are legally required to design a process to handle any disagreements regarding the employment status determination.
- You are legally required to ensure a proper audit trail and records.
- Try-out your processes
- Test-run all your operations, controls and systems to ensure they work.
Contracts and working practices
You must adhere to the processes you’ve created to recheck previous status decisions and undertake new ones if you’ve:
- Changed your working practices
- Changed contract arrangements
- Renewed old contracts
- Created new contracts
IR35 is no doubt a tricky set of rules. If these rules apply to you, then you need to pay your tax as if the client has employed you, including employees and employers National Insurance Contributions. To get a clear picture, make sure you consult legal help.