What is IR35?
Off-payroll working (IR35) legislation was introduced by HMRC in 2000 to tackle the taxman’s belief that many individuals trading through personal service companies (PSCs) were actually disguised employees. It aims to ensure that individuals paid through intermediaries pay similar tax and national insurance contributions as staff if they are deemed employees for tax purposes.
IR35 affects all contractors who do not meet HMRC’s definition of self-employment.
What is changing?
The contractor is currently responsible for determining if they are inside or outside the scope of IR35 using the employment status checks set out by HMRC. These checks are not changing, but from 6th April 2021 it will be the end-user client who is responsible for making the decision.
A similar change was implemented in the public sector in April 2014.
When the engagement is deemed to be inside IR35 the responsibility for making tax and national insurance deductions moves from the intermediary to the fee-payer (i.e. the party next to the intermediary in the supply chain).
What does it all mean for clients?
If you employ contractors you need to carry out a review of each individual to determine whether their employment status falls inside or outside of IR35. The Government introduced the online Check your Employment Status for Tax (CEST) tool to assist the decision-making process. https://www.tax.service.gov.uk/check-employment-status-for-tax/reason-for-using-tool
Where the contractor is deemed to be 'inside' IR35, then the client or the employment intermediary (through which the contractor is engaged if there is one) must deduct tax and national insurance from the contractor’s pay and also pay Employer’s NIC as if the contractor were a traditional employee of the client.
HMRC require that the end user produces evidence of their determination for each and every contractor in the form of a Status Determination Statement (SDS). The legislation prescribes that the end user will be required to share the SDS with all parties in the contractual chain, including the PSC contractor.
What does it all mean for contractors?
The client for whom you are working must inform us (your agency) whether or not your working practices fall Inside or Outside the IR35 Regulations.
Should the Client determine that you (our Contractor) are working INSIDE IR35 then it will mean a change in the way in which you pay your tax and national insurance and there are options we can discuss with you.
If you are unhappy with the decision of the client you will have the right to appeal, with the end client being responsible to respond within 45 days of the appeal. By allowing the contractor a voice in the determination process, it is hoped that the number of disputes will be kept to a minimum.
Find out more
If you're a client or contractor working with RHL please contact your consultant to discuss how IR35 affects you in more detail.
You can find out more on the Government website.