Off payroll working and IR35 does it affect me?
What is Off-payroll Working?
The IR35 or Off-payroll working rules are what HM Revenue uses to describe when an individual provides their services to another business through their own personal service company.
This employment chain can be quite simple in that it just involves the individual's personal service company and the end client, or it can be complex with a number of third parties involved. However long this chain is HMRC will look to see the end client that the individual is working for in this chain and a decision will be made if it is inside or outside IR35.
The decision can be made on the HMRC website using the check employment status for tax tool that was made available for companies to use. Although there are a number of other third party tools that can be used. These tools are generally thought to be better since the HMRC CEST does not take account of one of the factors for IR35 called mutuality of obligation.
The IR35 status of a worker cannot be determined by the contract itself, the working practices also need to be taken into account. Does the worker actually behave and are they treated like a regular employee or are they a genuine third party?
What changed for Off-payroll working?
Generally not much has changed for Off-payroll working the tests are still the same as Right of substitution, Control and Mutuality of Obligation will still be used to determine if the worker is inside or outside IR35. The difference is that now it will be the end client that will; make this determination and not the contractor or freelancer.
The first change if the rules came into force in the Public Sector in April 2017. Up to that point it was the worker who could determine the IR35 stats. Since 2017 it is now the end client that makes the determination and the fee-payer is responsible for making the deduction of tax.
The fee payer refers to the company or organsation that pays the worker. This could be the end client if the supply chain is quite simple or it could be another consultancy or recruitment agency in more complex supply chains.
These changes came into the private sector in April 2021 and brought this into line with the public sector. It is now the end client that is responsible for determining the IR35 status of a worker and the fee payer to make sure that the correct income tax and national insurance contributions are deducted from the pay.
There is an exemption for small businesses where it is still the worker that makes the IR35 determination. The business is considered small if can satisfy two of the following criteria
it has a turnover less than £10.2 million
balance sheet of less than £5.1million
or had no more 50 employee’s for the company’s financial year.
Does IR35 affect me?
If you are engaging freelancers or contractors into your business you will need to be aware of the new rules if you do not qualify under the small business exemption. If you are a small business as described by the rules above it may be prudent to make sure that you have a process to correctly establish a workers IR35 status before you engage them to make sure of your IR35 compliance.
If you are not qualifying for the small business exemption and are engaging the workers directly you will need to have this process in place and be using the HMRC check employment status for tax tool or another third party application for checking the status of the worker.
If you currently have any workers currently engaged in this manner you should probably do an audit of the current workers to make sure that they are not falling under the rules for IR35 as disguised employees.
What do I need to do to be IR35 compliant?
You should be aware of the IR35 rules post April 2021 and you should be applying them in your business. You need to have a process of assessing each engagement and if you are paying the contractor directly and making sure that the correct employment taxes are deducted from their wages.
You will need to provide the freelancer or contractor with a written explanation of your decisions and to allow them a process to appeal any decision if they are not satisfied with it.
You need to have a process to assess each engagement that you take with a freelancer or contractor and either use the HMRC CEST tool or use a third party to assess the role. The benefit of using a third party is that you can usually arrange an insurance policy with them if they are assessing the contract to offset any potential tax losses should you be subject to an IR35 assessment.
How can Pisces help me be IR35 compliant?
We can help you set the process in place to correctly assess your staff for IR35 compliance and to make sure that you are up to date with the current tax legislation. We can help you correctly assess your workers status and make sure that you are deducting employment taxes from them.
We can help you arrange insurance for any potential tax losses that you may suffer as a result of an IR35 assessment and make sure that the contracts and working practices are in place to keep you compliant.
If you need further help please arrange a call and we discuss further how we can assist you in your IR35 and off-payroll working compliance. .