IR35 An employment perspective - Clive Dobbin (Partner) Sarah Hayes (Solicitor) - Paris Smith LLP

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IR35 An employment perspective - Clive Dobbin (Partner) Sarah Hayes (Solicitor) - Paris Smith LLP
IR35
An employment perspective
     Clive Dobbin (Partner)
     Sarah Hayes (Solicitor)
IR35 An employment perspective - Clive Dobbin (Partner) Sarah Hayes (Solicitor) - Paris Smith LLP
What is IR35 and what is the
      background?

• Tax anti-avoidance rule to address “disguised
  employment”

• Historically employees would set up a Personal
  Service Company (“PSC”) to provide their
  services. Pay less tax and avoid National
  Insurance (NI).
IR35 An employment perspective - Clive Dobbin (Partner) Sarah Hayes (Solicitor) - Paris Smith LLP
When does IR35 apply?
Is there a hypothetical contract?
       • A is a person
       • B is usually his/her personal service company
         (PSC)
       • C is a company to whom A provides personal
         services through his/her personal service company
         (PSC)
IR35 An employment perspective - Clive Dobbin (Partner) Sarah Hayes (Solicitor) - Paris Smith LLP
Off Payroll Working- What is it?

  A                        B                            C
                                     Written contract
 Individual               Personal
  Worker/                 Services
Contractor                                              Client
                          Company
What are the current rules?
What the current rules?

•   Currently (i.e. pre-April 2021), the contractor (A) is responsible for
    assessing whether IR35 applies.

•   Personal Services Company (B) ignores its company as the
    intermediary.

•   Considers whether the worker (A) would be an employee if they were
    providing services directly to the client (C).

•   If so, the Personal Services Company (B) is responsible to make
    appropriate PAYE and NI deductions on the fees that the Personal
    Services Company receives.
Off Payroll Working- What is it?

  A                                B                Written contract
                                                                       C
 Individual
   Worker
  Worker/                            PSC                                   Client
Contractor

                            Hypothetical contract

                               Lower level                   Upper level
                                contract                      contract
                     PSC                       Agency
                                                                             Client

                           Hypothetical contract
Why is this changing in April 2021?

• Already applies in public sector

• In 2018, Chancellor announced an extension to the
  scope of the rules to also apply to medium and large
  organisations in the private sector.

• Postponed and due to come into force April 2021.
What are the changes?

• From April 2021, responsibility for assessing whether
  IR35 applies will shift, from the contractor/PSC to the
  end user/client.

• If the end-user/client determines that IR35 applies, the
  responsibility for operating PAYE and NI moves from the
  PSC to the “fee payer” (i.e. the entity which has
  contracted directly with the PSC).
How is it changing?

• Client = Highest person in the contractual chain
   ▪ Required to make a determination of whether IR35 applies

• Fee-payer = person immediately above the intermediary in the
  contractual chain
   ▪ Treated as making to the worker, and the worker is treated as
     receiving, a payment which is to be treated as earnings from
     an employment (“deemed direct payment”)
   ▪ Therefore required to operate PAYE
   ▪ Fee earner is the entity that is contracting directly with the
     PSC.
How is it changing?

   Individual
    Worker/
 Contractor                  PSC                            Client

                                                 “Client and “Fee-payer”

 Individual
  Worker/
Contractor            PSC          Agency                            Client

                                   “Fee-payer”
Employment status

Very topical area of employment law

Categories
  • Employee
  • Worker (not a tax status)
  • Self employed
     o Under limited company/personal service company
     o Sole trader
Employment status – why does it matter?

                        Employee   Worker
Unfair Dismissal        Yes        No
Minimum notice          Yes        No
Redundancy              Yes        No
Maternity leave & pay   Yes        No
Statutory sick pay      Yes        No
Employment status – why does it matter?

                             Employee   Worker

National minimum wage        Yes        Yes
Working Time Reg (holiday)   Yes        Yes
Discrimination               Yes        Yes
Auto-enrolment               Yes        Yes
Employment status

Employee

    ‘an individual who has entered into or works
    under a contract of employment’

                 Section 230(1), Employment Rights Act 1996
Employment status - factors

•   Personal Service
•   Pay
•   Mutuality of obligation
•   Control
•   Equipment
•   Risk
•   Integration
•   Sickness/holiday
Worker – definition

Any other contract….whereby the individual
undertakes to do or perform personally any
work or services for another party to the
contract whose status is not…that of a client
or customer of any profession or business
undertaking carried on by the individual
Worker – factors

• Personal service
• Business undertakings
• Mutuality of obligation
Worker – Business undertaking

Similar factors to employment test, but ‘bar set
lower’
   •   Control
   •   Exclusivity of arrangement
   •   Duration
   •   Method of payment
   •   Supply of equipment
   •   Level of risk
Limited company contractors

• Individual supplied to client through limited
  company
• No direct contact between individual and client
• Courts can look behind limited company to
  reality of situation
Pimlico Plumbers
Pimlico

• Treated as self employed
• Had been engaged for 5 ½ years
• Worked full time (although contract said not
  obliged to accept work)
• Required to wear uniform
• Drove van with Pimlico logo on side
Pimlico

•   Provided own tools
•   Accepted risk – insurance & if client didn’t pay
•   Right of substitution
•   Restrictive covenants
Pimlico

Held
  • Not an employee
  • But was a worker
Uber
Uber

• Uber argued that simply a technology platform
  for taxi drivers
• No commitment to offer any work
• Driver supplied vehicle, responsible for all costs
• But when signed onto app, was available for
  booking
Uber

• Driver offered work, 10 seconds to accept, if not
  allocated to someone else
• If didn’t accept work, could be suspended from
  app
• Uber set price for journey
• Passenger pays Uber, who pay driver less
  service charge
• No uniform
Uber

Drivers were workers when:
   • In territory in which authorised to drive
   • Turned on app
   • Ready and willing to accept fares
What steps can be taken to prepare?

• Consider atypical workers
  • Consultants
  • Off payroll working
  • Casuals
• Consider if:
  • Actually employees; or
  • Workers
What steps can be taken to prepare?

• HMRC’s Check Employment Status for Tax (CEST) tool
• End user clients required to provide a status determination
  statement (“SDS”) to both the worker and any third party
  contracted with.
• Ensure processes in place to pass the SDS to the worker and
  any relevant third party.
• What if determination is challenged?
• Do you have template documentation ready?
What does this mean?

• Engagers may consider bringing workers onto
  their payroll as employees.

• Engage individual directly as a self-employed
  contractor?

• What other issues are you experiencing?
Any questions?
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