Navigating IR35 ESSENTIAL NEXT STEPS FOR COMPLIANCE - Building leadership. Enabling change - BIE Executive
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Building leadership. Enabling change. Navigating IR35 ESSENTIAL NEXT STEPS FOR COMPLIANCE
What’s changing?
As things currently stand, contractors and interim
As 2020 starts and we embark on our projects for the employees operating via Personal Service Companies
forthcoming year, making a New Year’s resolution to (PSC) are responsible for assessing their own IR35
tackle IR35 sooner rather than later will be one position and ensuring compliance with PAYE legislation.
commitment many businesses are glad to have made. As of April 2020, the responsibility for assessing IR35 status
will shift from the individual to the private sector
companies that hire them.
For businesses, this means they as clients will be legally
required to ensure that PSCs in their supply chain have
the correct PAYE deductions made where applicable, or
risk penalties and being liable for any unpaid taxes
themselves.
For contractors, employment status from a tax
perspective will be decided by the client – whether they
are genuinely self-employed for tax purposes (outside
IR35) or an employee for tax purposes (inside IR35). The
contractor will no longer have a choice or control over
this decision.
Where a role is deemed to be inside IR35, PAYE and NIC
will be deducted from payments made to a contractor
as though they were an employee, and Employer NIC
at 13.8% and Apprentice levy at 0.5% will also need to
be paid by the client.
What’s the reason for the change? The legislation has been introduced to tackle ‘disguised employment.’ This is where clients engage contractors indirectly through a PSC, rather than directly as an employee, and were it not for the presence of the PSC, tests of employment would lead to the conclusion that the arrangement is one of direct employment. In this scenario, the client saves by not having to pay Employer NIC at 13.8% of gross wage and Apprentice Levy of 0.5%, and also saves by not providing benefits of employment such as rights and benefits. The contractor also profits from the tax and National Insurance saving opportunities that come with being a limited company.
What are the concerns? Businesses will need to invest time and resource to assess contractors on an individual basis. Organisations may therefore be tempted to take a blanket approach where all contractors are forced to work within IR35 or reduce the number of contractors they employ altogether. Where a role is found to be inside IR35, there is also a concern that some businesses may pass the extra cost due to them of Employer NIC and Apprentice Levy on to contractors, which could mean contractors are forced to look for roles that don’t bring them inside IR35 or look for roles that pay better, reducing available talent in the market and ultimately driving up market rates in the long-term. Interim employees have unique and niche skills that often cannot be replaced by permanent staff. Businesses that make rash or uninformed decisions may not only be acting unlawfully but limit their access to specialised talent.
Opportunities For most highly skilled career interim professionals genuinely operating in a fashion that indicates outside IR35 status, April 2020 will be business as usual. The legislative change does not affect the demand for talent to be engaged as a flexible resource, or for individuals to offer their niche skills to multiple organisations other than in a full-time permanent capacity. For businesses, this provides the ideal opportunity to review their operating models to ensure they have the optimum pipeline of talent available to thrive today and in the future. Businesses can often fall into the trap of not properly assessing and measuring the performance of the interims they engage. Some contracts are renewed multiple times, continuing for much longer than was initially envisaged, with the scope of roles changing over time. This will force businesses to tighten contracts, carefully consider what they want done – and how it will be achieved within the current operating model. Ultimately, benefiting both the business and contractors alike.
What clients will need to do To determine the tax employment status of a worker, businesses will need to: > Review their relationships with contractors operating through PSCs and decide the tax employment status of each worker. > Ensure that their terms of engagement with these contractors are transparent and accurate. > Provide a Status Determination Statement (SDS), along with the reasons for the determination, to the contractor and any person or organisation in the supply chain they contract with (such as a Recruitment Agency). > Keep detailed records of the employment status determinations, including the justifications for the determination and fees paid under the contract. > Make any changes necessary to contractual terms as a result of the SDS. ACT FAST - businesses should not delay. Changes in legislation apply to every payment made after 6th April 2020, in many cases relating to work carried out in March 2020. In practice, this means that SDS and contractual changes should be in place by the end of February 2020.
Key considerations in determining status
There are a number of factors used by HMRC to
establish whether or not an assignment is deemed
to be inside or outside IR35. Each assignment and
set of circumstances should be assessed in its own
right and on its own merits due to the subjective
nature of the determination. Potential factors
weighing in the balance include:Supervision, Direction, Control: The Intention of the Parties:
One of the key determinants of IR35 status is the extent to Even if no formal written contract exists, HMRC would want
which a client controls where, when and how an individual to determine what the true status of the relationship
performs their work. If, for example, a contractor works at between the parties is – one of employment of
set times at a business premises this implies employment, as self-employment.
does the need for supervision of the tasks performed, which
would not be expected where a self-employed skilled
individual has been engaged. Substitution:
Can the contractor bring someone else in to complete the
contract, or do they need to do the work themselves? If the
Mutuality of Obligation (MOO): work cannot be done by another contractor, they are likely
Is there an obligation to offer work, and does the contractor to be within IR35.
have to accept it? If so, the contract is likely to fall within
IR35.
Provision of Equipment:
Does the contractor use company equipment or their own?
Financial Risk:
Where does the financial risk sit? If all the risk of the project
lies with the client, for example, then it is likely the role will sit Basis of Payment:
within IR35. Those outside IR35 are likely to be paid a set fee for the
completion of a project, rather than a fixed hourly/daily
rate.
Part & Parcel:
To what extent has the contractor integrated with the busi-
ness. For example, do they have line management respon- Exclusive Service:
sibilities, attend staff meetings and socials, or receive staff Does the contractor work for just one client and/or has
benefits? their contract been renewed multiple times? Those outside
of IR35 are likely to have multiple clients.Next steps If your business is affected by the new legislation, we would strongly urge, if you haven’t already, to start taking steps to determine the status of all contractors operating through a PSC within your business, particularly given timelines involved. There are a vast number of experts available to offer advice and guidance to ensure you have the support you need to make informed decisions. This is an excellent opportunity to take a step back, review your business operating models and consider the best approach for your projects and business talent in 2020. * This IR35 guide does not constitutes legal advice and should not be treated as such. The contents of this guide are for general information purposes only. Whilst we endeavour to ensure that the informa- tion within this PDF is correct, no warranty, express or implied, is given as to its accuracy and we do not accept any liability for error or omission.
Building leadership. Enabling change.
www.bie-executive.com
To continue the conversation, you can call or email us
0203 953 3250 | info@bie-executive.comYou can also read
