Employers: Now Responsible for Proving IR35 Status of Contractors
The new HMRC rules have wide implications for businesses who regularly employ people on a sub-contractor/contractor basis, especially those in building, construction, hairdressing, catering, agriculture, healthcare, textiles and many other labour-intensive business sectors.
What is the IR35 scheme?
From 6 April 2021, the IR35 scheme has come into force. This scheme is expanded to medium and large private sector businesses.
These are defined as organisations where two of the following apply: an annual turnover of over £10.2m, a balance sheet of over £5.1m or more than 50 employees
What are the changes to IR35 ?
Previously, these rules only applied to public sector companies and it was the responsibility of the contractor to complete the IR35 assessment.
The IR35 rules are anti-avoidance tax legislation that is in force to tax disguised employment at the same rate as that of normal employment.
How will IR35 changes affect me?
It is now the responsibility of companies that use contractors (i.e. the end-users) to determine their contractors employment status and provide a Status Determination Statement. If an employment relationship is determined then there should be a deduction of tax and NICs at the appropriate rate
As to establish if an employment relationship arises depends largely on the contractual arrangements in place.
If the contract has a right of substitution, avoids an obligation to provide/ accept work, is structured by reference to completion of a project or piece of work and avoids integration (i.e. the provision of a work equipment or email account), then it is likely to constitute genuine self-employment and won’t be subject to the off-payroll rules.
- The working relationship of each case needs to be looked at. We are able to assist with the factors that HMRC will be looking for and we are able to assist with your status determination requirements.
- If you get this wrong and the off-payroll rules apply, the result is additional payment of tax and NIC liability, together with the possibility of HMRC being able to pursue the end user and to look at the company in depth at how the business works with their contractors.
When you as an employer are making the determination statements for your contractors, you should use the HMRC check employment status for tax (CEST) tool.
It is however not unusual for a status to be “unclear”. If you are unsure, it is imperative that you take independent legal advice which we are on hand to provide.
Contact us for employment IR35 advice here.
Need more information?
What is the IR35 Scheme? Check-out the new HMRC guidance rules...