Extensive changes to the UK’s IR35 off-payroll employment regulations took effect on April 6, 2021, and despite a 12-month delay, comprehensive HMRC advice, and later revisions to the Act, there are still areas of uncertainty.
What is IR35?
The name IR35 is commonly established for anti-tax avoidance policy. It was conceptualised and introduced in the year 2000. IR35 is basically a tax legislation with the purpose of ensuring right tax is paid by individuals offering services in self-employed capacity & typically through personal service company (PSC).
While the legislation itself did not undergo any massive change, a new legislation was added known as ‘Off-Payroll Work’ rules. The authorities introduced this legislation within public sector in the year 2017. It was extended to private sector from April 2021 onwards.
A critical change between the two legislations included tax statue assessment for the self-employed personnel for the contractors, obligation to evaluate the IR35 moved from individual contractors over to end clients and to the hirersi.e.,medium and large-sized firms in the private sector. This means small companies are exempted from falling under this change. Under the Companies Act, 2006, a small company is the one that meet two or more of the following criteria:
- Annual turnover of not more than £10.2m.
- Balance Sheet total of not more than £5.1m.
- No. of employees not more than 50.
How to determine the employment status?
IR35 applications include application of three major principles for determining employment status from the ready-mixed concrete cases. These are generally known as employment tests. These three major aspects are:
- Control – It is described as the degree to which client has control over the worker’s completion of the job.
- Substitution – It is identified as either personal services required by the worker or substitutes can be sent in place of the worker.
- Obligationmutuality – It includes obligation by employer to offer work and obligation of the worker to accept the work.
Some other factors might be taken into account when determining the eligibility or chances of paying IR35 like contract type, contractors or workers taking financial risks, being part & parcel of engager organization as well as being in your own business account.
HMRC has developed an online tool – the Check Employment Status for Tax (CEST) – that may be beneficial when determining whether an off-payroll person is deemed an employee for tax reasons.
Getting it wrong: Risks involved
It is understood now that the client (end user) is legally responsible for determining the employment status i.e., whether contract is inside or outside IR35. They could be at various risks if theircontractors are determined incorrectly in eyes of HMRC.
Financial Risk –The HMRC could demand back taxes as well as penalty for late payment from fee-payers if they disagree with the judgement made.
Legal and Operational Risk –It might result in project delays owing to a lack of resources, HMRC lawsuit, and a limitation on the flow of contract talent, all of which could harm the company’s image.
How can Coreadviz help you?
We are devoted to assisting our clients through legal changes in our capacity as a team of professional and qualified accountants. We will provide you sound recommendations depending on the sorts of contracts you’ll be working on. We are available to assist firms who employ contract resources in implementing a rigorous compliance procedure. Our team can assist you in doing a comprehensive assessment of your contractual staff and recommending a sensible and cost-effective solution for your company.
Contact us at +44 3301331114