If you’re responsible for employing contractors for your business, the upcoming changes to the off-payroll working (IR35) legislation should be well and truly on your radar. IR35 is a piece of legislation that seeks to determine tax status for individuals working through a limited company (often known as a PSC).
As of April 2020, the responsibility for determining the status of the worker for tax purposes will move from the worker to the end client. These changes reflect changes made in the Public sector in April 2017. It will affect all payments made on or after 6th April 2020 to limited companies.
Making relevant deductions
From 6th April 2020
Fee Payer (eg. Huntswood)
On 7th January, the Government announced a review of the implementation of the changes to the IR35 rules to be completed by mid-February. It is looking at how to make the implementation in April smoother, and to ensure that the truly self-employed are not negatively impacted.
The end client will be responsible for determining the IR35 status of each contractor either before or on the start date of the project. It is the end client’s responsibility to share the determination to the entire supply chain and worker within 30 days of making it.
Huntswood are happy to assist you with this process
The fee payer in the supply chain (eg Huntswood) will be liable, like in the Public Sector, for deducting the relevant Tax and National Insurance contributions at source based on the determination made. Where end client’s engage and pay contractors directly they place will become liable should HMRC find any inaccurate deductions have been made.
After the Public Sector rules came into effect, it became clear that a number of organisations had carried out ‘blanket determinations’. This forced many contractors inside IR35 irrespective of the fact they might well have belonged outside of the scope of the legislation.
HMRC addressed this issue, insisting that ‘reasonable care’ needs be taken by companies administering IR35 and that blanket decisions are not compliant. It went on to explain that it will result in the liability being transferred from the fee payer to the client. This is in keeping with the Public Sector rules.
However, the Government does view decisions made to a group of Off-payroll workers with the same role, terms and contractual conditions as “appropriate in some circumstances.” Tax specialists are concerned about this, arguing that it increases the chances of mistakes being made when setting status.
The Government has said it requires a “client-led” resolution process for when a contractor disagrees with an IR35 decision. HMRC have indicated that showing a clear audit trail and supporting evidence for making a status determination has to be shared to the entire supply chain. Once a dispute is received the client has up to 45 days from to respond to the dispute.
Huntswood are happy to facilitate this process if required.
The end client will be responsible for cascading the determinations down the supply chain via suppliers to each worker.
HMRC have outlined that they expect reasonable care and transparency be taken to establish IR35 status. They have published their CEST tool to determine an associates status. A revised version of the tool was published in November 2019.
Some end clients may decide they do not want to take on the burden of completing status determinations. They may choose to only work with contractors employed through an umbrella company. Contractors employed this way are not subject IR35 as they are not self-employed, therefore no determinations are needed.