After being delayed for a year due to the Coronavirus pandemic, the new private sector off-payroll working legislation (IR35) will be in-force from April 6th, when an extended version of the public sector rules will be applied to the private sector. But what does this mean?
Here are 12 points you need to consider:
1) Medium-sized and large businesses employing private sector contractors will be responsible for determining the contractor’s employment status for tax.
2) The ‘fee payer’ – simply the entity responsible for paying the contractor’s limited company – is responsible for the correct deduction of PAYE tax and National Insurance (Employers’ AND Employees’) from the contractor’s fee and paying this over to HMRC.
3) Where an end client engages contractors directly, they are both IR35 decision-maker AND fee payer.
4) Where there are agencies in the chain, the agency responsible for paying the contractor’s company will be the fee payer.
5) Contractors working for medium and large businesses must be provided with a Status Determination Statement (SDS) and the reasons behind the status decision. They have the right to dispute the decision if they disagree with it and the end client must respond to that challenge.
6) The client has a duty of reasonable care when determining the IR35 status of an engagement. If the client has failed to take reasonable care, HMRC will confer the fee payer liability on to the end client
7) The SDS must be passed down by the end-client to the individual worker and where there is an agency engaged by the end client, the agency must also receive a copy.
8) NB: anyone in the supply chain who does not meet their legislative obligations and/or fails to pass down the SDS will become liable for any unpaid tax and NICs.
9) Even if the end-client does everything correctly, but its supply chain fails to pay IR35 tax and NICs, then the liability can be transferred up the chain. Therefore, end-clients need to have a compliant supply chain and they may want work with the agencies which have insured their fee payer liability with a reliable insurer.
10) NB: there is an exemption from the IR35 decision-making for small businesses, as defined by s382(2) of the Companies Act 2006. To be classed as small business, the organisation must meet at least two of the following criteria:
- Annual turnover of no more than £10.2 million.
- Balance sheet total of no more than £5.1 million.
- No more than 50 employees.
11) Where a contractor is engaged by a small business, the contractor will continue to determine their own IR35 employment status and will also retain the liability for tax and National Insurance Contributions (NICs). As is currently the case, if a contractor is challenged by HMRC, they will need to demonstrate due diligence that their ‘outside IR35’ decision is based on a proper assessment of the contractual terms and working practices.
12) Contractors who do not already do so, may also want to protect themselves from the cost of an HMRC enquiry and even the potential tax loss if HMRC can successfully argue that IR35 applies.
Caunce O’Hara offer a range of business insurance solutions to help contractors stay protected including Tax Enquiry & Legal Expenses Insurance, which provides cover for costs incurred by a HMRC investigation. Tel 0333 321 1403.
Markel Tax offer specialist IR35 tax services to help end client decision-makers ensure they are compliant with the legislation. Agencies who may be concerned about their fee payer liability can also consider insurance. To find out more, please contact Markel Tax on 0345 223 2727.