IR35 is to stop disguised employees from taking advantage of tax advantages by working under their Personal Services Company (PSC).
From the 6th of April 2021, the liability of tax moves from the contractor to the client.
IR35 applies if:
- A) There is a supply of labour to a public or medium / larger company
- B) There is a supply of labour involving a contractor working under a PSC
- C) There is a supply of labour which falls under IR35
A) Public sector is inside – includes BBC, Channel 4, TfL, Network Rail, Universities
- Private sector IR35 exempt if 2 of the 3 are relevant:
- If a client has: Less than 50 employees
- Turnover of less than £10.2m
- Balance sheet of less than £5.1m
B) IR35 exempt if:
- If you are working under PAYE
- If you are working under a trusted Umbrella under PAYE
- If you are a sole trader (however sole traders fall foul of other tax liabilities for the agent)
C) IR35 exempt if you: (not limited to the following – for guide only)
- Control or management of the contractor (start/ finish times or how the work is done)
- Integration into the business
- Work deemed business as usual
- Staff perks (car parking / canteen / xmas parties)
- Utilising company kit
- Right to substitution
- If the project is Business as Usual it is probably inside IR35
- Client must produce an SDS – Status Determination Statement for each contractor they have working to determine if inside or outside IR35.
- Client is responsible for producing an SDS
- Client must communicate the SDS to the agency & worker with reasons for the outcome.
The fee payer is liable (previously the contractor was liable)
The agent is liable unless:
- Client has failed to communicate a Status Determination Statement SDS to agency or worker
- Client has issued an outside SDS and in doing so has failed to take reasonable care
- Client has issued an outside SDS and has not given reasons for this decision (within 45 days of asking)
- Client directly engages
- Client is liable if HMRC considers there is no reasonable prospect to recover tax from the agency in a reasonable time.
If the worker disagrees with the SDS
- No right to appeal but has a right to explanation (within 45 days)
- Significant reduction in take-home pay by either moving to employed
- Umbrella company PAYE (Qualified)
- Blanket ban on PSCs by clients
- Losing contractors
- Increased costs
- If a project is deemed to be outside IR35 then the contractor can continue under their Personal Limited Company.
- If a project is deemed to be inside IR35 then the contractor will need to work under an umbrella company and pay tax at source.
Result: Increase cost of approx. 25%
The CEST tool
How can a project be deemed to be outside IR35
3 Main elements
Control & Direction:
- The extent to which a client controls where, when and how the contractor performs their work
- Control could include start or finish times, supervision, staff perks associated with permanent employees
- The right to provide a substitute
Mutuality of Obligation:
- The client must hire for a specific piece of work, a specific project
- There can be no expectation of further work being provided after the initial task expires
Provision of Equipment:
- The contractor should use their own equipment for the project
- If the risk lies with the client then this is an indicator of ‘employment’
Basis of Payment:
- The regularity of payment may have influence on IR35 status
Part & Parcel:
- Does the contractor have access to employee facilities? – eg staff social events or receiving staff benefits
- Does the contractor work for just one client and have the contract renewed many times?
Brookson Legal Solution / Portal
Full Remote IR35 Audit per role:
- Upload information to produce a SDS via an online portal
- Each role will be audited by Brookson Legal with discussion on reasonable changes to working practices to see if border line cases can be moved outside IR35.
- SDS outcomes can be downloaded in PDF format
- Cost £150 per contractor (per role)
Conspicuous is partnering with Brookson Legal to help all clients produce SDSs and work to best practice when working with contractors within their organisations.
By working with Brookson Legal, you are meeting the HMRC criteria of ‘reasonable care’ to determine the SDS.
For an introduction and a demo of the Brookson Legal offering, please contact Conspicuous.