10th March 2021
Engaging contractors and IR35
Do you engage contractors through personal service companies or other intermediaries?
If yes, you should consider reviewing your IR35 position ahead of the changes on 6 April 2021.
For related content see Everything you Need to Know about IR35 here.
What will change on 6 April 2021 apropos engaging contractors and IR35
- Unless you’re a small company, the off-payroll working rules will apply. Thus, you may be responsible for deducting tax and NICs from (and paying employer NICs on) payments made to contractors.
- The responsibility for determining the application of off-payroll working rules (IR35) will move to the organisation receiving an individual’s services.
12 factors/indicators used to determine status are:
1. Personal Service –
To be an employee, the worker has an obligation to provide their services personally. If the worker has scope within the arrangement/contract to provide a substitute, this will point away from an employment relationship.
2. Mutuality of obligation –
For an employment relationship to exist, there has to be an obligation from the worker to provide their services. And, also, an obligation on the part of the company/employer to provide work and to pay the worker.
3. Right of control –
An employee has to be subject to a certain degree of control. Yet in practise there tends not to be a need to exercise such control. According to HMRC, it’s the right of control that matters. E.g., employees are usually expected to work set hours each day. Independent contractors are more likely to have the freedom to work when and where they like.
4. Provision of own equipment –
A self-employed contractor generally provides the equipment needed to do the job. In contrast, if you provide a worker with equipment and materials, this points towards employment.
5. Financial risk –
Individuals risking their own money (For example, incurring expenditure on training to get the skills needed, that get used in later engagements) are less likely to be employees. Self-employed workers may also have to rectify unsatisfactory work in their own time for no further reward.
6. Opportunity for profit –
Likewise, a person whose profit (or loss) depends on the capacity to reduce overheads and organise work in an effective manner is more likely to be self-employed.
7. Length of engagement –
This is unlikely to be determinative of status in itself. Yet, it’s more likely that an employee will have an open-ended contract. A long-term stable relationship is more likely to be one of employment than an intermittent infrequent one.
8. Integrated within the organisation –
If an individual is “part and parcel” of a client’s organisation, they are more likely to be an employee. HMRC guidance gives the example of someone taken on to manage a client’s staff. As a rule, the view taken there would be that of an integral part of the client’s organisation – though that could end up viewed as a strong indicator of employment.
9. Employee-type benefits –
Paid leave, membership of a firm’s pension scheme, a right to car park space, access to canteen facilities etc. are all strong indicators of the existence of an employment relationship. Access to policies and procedures may also be a strong indicator.
10. Right to terminate contracts –
A right to terminate an engagement for a reason other than serious breach, by giving notice of a specified length, may be viewed as indicative of a contract of employment. Yet, HMRC would likely view this as a minor factor.
11. Personal factors –
Where you have a skilled worker, working for several clients throughout the year, with a business-like approach to obtaining engagements, guidance suggests a pointing towards self-employment. But, guidance also states that personal factors will usually carry less weight in the case of an unskilled worker.
12. Mutual intention –
The intention of both parties can be decisive where there’s an even balance in the factors pointing to employment and to self-employment. But yet, a stated intention (for example that an individual is not an employee) will not, without more, be determinative.
Businesses must ensure they understand the effect of the changes, with status being only one key area to consider.
If you have any concerns about whether you will be in breach of the new rules or simply want to know more, feel free to contact me on 07801 709945 or via the contact form on www.go-legal-hr.com