What is IR35?
In its simplest form it is the intermediary’s legislation introduced in 2000, known as IR35, a piece of anti-tax avoidance legislation to combat what HMRC call ‘disguised employees’. A Disguised employee is a self-employed worker who fills a permanent position in a company but does not pay the corresponding income tax and National Insurance that a permanent worker would.
What are the key IR35 tests?
IR35 is very subjective and the tests below are a guide that should be reviewed by an expert and guidance given on changes that can be made legitimately!
Control – How much control does the end-hirer have over the worker? (How, what, where and when they work/carry out their duties)
Personal Service (substitution) – Is the contractor required to carry out the work themselves? Can they send a replacement?
Mutuality of Obligation – Is there an obligation on the worker to work and an obligation on the other party to pay and to continue to make work available during the time of the contract?
Other factors – These aren’t as important as the key tests but look at whether the contractor is in business in their own right, have financial risk and possibly use or provide their own equipment
What is changing in April 2021?
It will no longer be the contractor’s responsibility or liability to assess their IR35 status. Their client will need to assess the contractor’s IR35 status whilst taking reasonable care in the decision. They must produce a detailed SDS (Status Determination Statement) with reasons why the role is inside or outside of IR35. If the role is inside of IR35 the ‘fee payer’ (usually the agency) will need to arrange for PAYE/NIC to be deducted or utilise an umbrella company.
What is Reasonable Care?
Introduced with the public sector changes in 2017, reasonable care requires hirers to take the necessary steps to correctly audit their self-employed workforce. This is how we expect HMRC to police the legislation, at end client level and with a focus on reasonable care.
Businesses will have to demonstrate that they have taken active steps to prepare for and comply with the new legislation. There are a number of examples below:
- Seeking the advice of a qualified, professional advisor indicates that reasonable care has been taken.
- Inputting inaccurate information into CEST indicates that reasonable care has NOT been taken.
- Subcontracting the SDS process to another party (agency or contractor) and not confirming the accuracy of the conclusion or reasons for it indicates that reasonable care has NOT been taken.