IR35 is a piece of legislation that seeks to determine tax status for individuals working through a limited company, or a PSC as commonly known. There are a number of tests used to determine employment status for tax.
In the Public Sector Limited company contractors have been responsible for determining their own tax status and paying the relevant tax accordingly up until April 2017, where that responsibility then fell to the end client.
As of April 2020, these rules will be rolled out to the Private Sector, where the responsibility for operating the Off-Payroll legislation will sit on the organisation, agency, or other third parties engaging the worker. It will affect all payments made on or after 6th April 2020 to limited companies.
It will also be mandatory to share the determinations made per worker.
The end client will be responsible for determining the IR35 status of all associates, whilst the fee- payer, in this case us, will be responsible for deducting the relevant Tax and National Insurance contributions at source based on the determination made.
You, the end client, will be responsible for determining the IR35 status of all your contractor workforce either before on the start date of the project. Responsibility also lies with you to share the determination to the entire supply chain and worker within 30 days of making said determination.
Huntswood are happy to assist you with this process
The fee payer in the supply chain will be liable, like in the Public Sector, for deducting the relevant Tax and National Insurance contributions at source based on the determination made. This means that end-clients that engage and pay contractors directly and recruitment businesses that pay the contractors they place will become liable should HMRC find any inaccurate decisions 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 will implement a “client-led” resolution process for when a contractor disagrees with an IR35 decision. No detailed explanation around the specifics of how this would work has been issued as yet but the 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. The contractor has up to 45 days from receipt of status determination to log their dispute and rationale to you.
Huntswood are happy to facilitate this process if required.
The end client will be responsible for cascading the determinations to each worker. Huntswood are of course happy to do this for you if required.
The 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. This online tool was given precedence when the legislation took effect in 2017 in the Public Sector. There has been widespread concern around the reliability and transparency of this tool, which the HMRC have committed to addressing in the Autumn Statement budget announcement due in July 2019. Work has already begun on refining this and should be finished by March 2020.