Engaging contractors and IR35

Engaging contractors and IR35 - construction worker

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.

Engaging contractors and IR35 - construction worker

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

 

 

 

 

 

 

Everything You Need to Know about IR35

Everything you need to know about IR35 - calculator and tax documents

February 2021

Everything You Need to Know About IR35

IR35 – known also as the Intermediaries Legislation. There’s a lot to talk about regarding IR35. So this blog examines the main principles involved with IR35 with more to follow in the weeks leading up to the deadline. 

Everything you need to know about IR35 - calculator and tax documents

 HMRC defines IR35 as off-payroll working.  IR35 is shorthand for a particular piece of UK tax legislation. It’s designed to identify contractors and businesses that are avoiding paying the appropriate tax. They could be doing that by:

  • Working as ‘disguised’ employees
  •  Or engaging workers on a self-employed basis to ‘disguise’ their true employment status.

 April 2000 saw the introduction of IR35. It takes its name from the original press release published by Inland Revenue (now HMRC) announcing its creation.

So, what is IR35? And do you have any circumstances/relationships that will fall under the new rules? Let’s have further dig into everything you need to know about IR35

Put another way, IR35 is a set of rules. These rules help HMRC determine the tax and NICs that people contracted to work for a client via an intermediary should make. The new rules are intended to ensure everybody who should have ‘employee’ classification for tax purposes, pays PAYE tax and NICs as an employee would.

This is important from an HR perspective, if you either now, or in the future, engage workers through intermediaries – usually a personal service company.

An intermediary will usually be the worker’s own personal service company. They could also be a partnership, a managed service company, or an individual.

The rules make sure that workers, who would have been an employee if they were providing their services straight to the client, pay roughly the same tax and NICs as employees.

It’s now essential to review whether you have any arrangements that the new rules would capture. And would therefore, expect you to calculate the relevant tax and NIC contributions.

Questions that you, as an employer, should ask yourself so that you can 

  1. What are the IR35 off-payroll reforms
  2. How will they affect your organization?
  3. Have you considered any practical steps you may need to take to ensure that you:
  • Remain compliant with the law and …
  • … manage any extra liabilities.

Now  – as pointed out at the top of this article, April 2000 saw the introduction of the Intermediaries Legislation. And there are a set of conditions that determine this status that warrant further consideration:

The ‘off-payroll’ addition to the existing IR35 rules saw roll-out across the public sector in April 2017.

The rules will now hit private sector businesses from April 2021. 

The Covid-19 crises caused deferment of the planned rollout from April 2020. These new rules mean that clients (not contractors themselves) will be responsible for determining the employment status of contractor.

Vital that you understand the rules 

The requirements vary a little depending on whether the intermediary is a company, partnership or individual. But the new rules create the need to assess any contractor/worker arrangements you may have or would consider in the future. Hence, it’s vital you take the necessary steps to understand the new rules and be compliant with them.

A lack of understanding of the rules and regulations can lead to the imposition of financial penalties on your company.

As a first step you may wish to do a quick assessment of your IR35 compliance  here: https://www.gov.uk/guidance/understanding-off-payroll-working-ir35

Or, if you want someone to help you through it or even do it for you then Go-Legal HR will help you.  All our contact information is on our website here. 

And you can connect with Paul Himple, MD of GO-Legal HR on LinkedIn here.