Connecting

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IR35

What is IR35?

In 2000, HMRC introduced the ‘Intermediaries Legislation’ (known as ‘IR35’ or 'Off-payroll Working Rules') to ensure equal treatment for individuals who work in the same way. IR35 exists for the purpose of preventing tax avoidance amongst workers who, were it not for the fact that they supply their services via an intermediary, such as a Personal Service Company (PSC), would be treated as a ‘deemed’ employee for tax purposes.

HMRC refers to such Workers as ‘disguised employees’ as they do not meet HMRC’s definition of self-employment and therefore should not benefit from more ‘favourable’ self-employed tax rules. To improve compliance, HMRC reformed IR35, introducing changes to the Public Sector in 2017 and subsequently announced that the reforms would be introduced to the Private Sector on 6th April 2020.

Under the new proposals Clients (end users) will be responsible for determining employment status (for tax purposes) of all contractors. If the off-payroll rules apply, the party holding contract with the Limited Company contractor (Fee Payer i.e. NES) must pay Employers’ NICs, and withhold Employees’ NICs, taxes etc. at source and complete RTI returns. Limited Company contractor does not become employee of client nor agency and has no entitlement to employment rights but AWR rights may become an issue.

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HOW TO PREPARE

There is much that can be done in advance of the changes in April 2020 and sufficient time to deal with these. These include:

  • 1. REVIEW

    We recommend undertaking a full review of your contractual workforce and the work performed / required.

  • 2. SUPPLY

    A review of how your contractual workforce is supplied, including consideration of a managed service solution (if not using one already).

  • 3. PROCESS

    Adopt a process to test whether individuals provided through PSCs would fall inside or outside of IR35 (as an addition to any test under CEST).







Assessment Factors

The Client will be solely responsible (and liable) for producing a Status Determination Statement (SDS) which will document the IR35 status of an assignment and the reasons for that determination. The Status Determination Statement (SDS) assessment involves a balancing act, looking at a variety of factors based on a detailed review of all the facts relating to each assignment individually.

It’s crucial that there is a change in Client behaviour so the Contractor does not become Part & Parcel of the organisation.


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NES will Support you

  • Our highly experienced Compliance team can collate the necessary information from you (and Contractor if necessary) and conduct a review to advise whether it reflects how the assignment will be performed.

  • The information we gather is loaded into the CEST tool, after which we produce a ‘Draft SDS’ and issue to you. We then offer a Consultation Meeting to discuss your business’s working practices. If there are no changes, you then check the SDS. If acceptable, sign and issue to the Fee Payer and Contractor.

  • By engaging with NES at an early stage and supplying the accurate information, you will be able to satisfy your reasonable care obligation and create an audit trail if you receive any challenges from either the Contractor or HMRC.

  • How will IR35 affect
    Clients? >>

    The reforms mean that the IR35 status of all Contractors for a specific assignment will be determined by the Client, not the Contractor moving forward. To assist Clients with making the IR35 determination, they will need to use the HMRC digital tool - Check Employment Status for Tax (CEST) which asks a series of questions. Questions focus on areas such as levels of supervision, direction and control provided by the Client, which when completed will give a binding determination of whether the assignment will be inside or outside the scope of IR35.

    IR35 Fact Sheet - Clients

  • How will IR35 affect
    Contractors? >>

    IR35 exists to ensure that individuals who would be treated as employees were it not for the fact that they provide their services via their own Limited Company, pay the tax that they should. If your Employer determines that you as a Limited Company Contractor are ‘in-scope’ of IR35, then you as the Limited Company Contractor will be liable for increased Tax and National Insurance Contributions. 

    IR35 Fact Sheet - Contractors

  • How will IR35 affect
    Contractors? >>

    IR35 exists to ensure that individuals who would be treated as employees were it not for the fact that they provide their services via their own Limited Company, pay the tax that they should. If your Employer determines that you as a Limited Company Contractor are ‘in-scope’ of IR35, then you as the Limited Company Contractor will be liable for increased Tax and National Insurance Contributions. 

    Read more about how IR35 affects contractors.