IR35 is the commonly used term for the UK legislation introduced 20 years ago to prevent “disguised employment” tax avoidance.
In simple terms, avoidance arises when the disguised employee takes advantage of lower taxation offered to corporates than that given to individuals, by working through an intermediary vehicle, such as a personal services company (PSC).
There has been a tremendous amount of press coverage around changes to IR35. The update to the legislation has already been pushed back from April 2020 due to the pressures of COVID. However, this April they are coming into force. The main essence of the legislation remains as it always has done; however, the key change will be who is responsible for making the status determination.
Are you going to be impacted by the changes?
Currently, contractors are accountable for making their own assessment as to whether they fall outside of IR35 or not. Currently, if the conclusion reached is incorrect, they are liable for unpaid tax and both individual and employer NI contributions. However, this all changes on 6th April 2021. The assessment, and more importantly any liability, will now sit with the end client or fee payer.
What you need to prepare for:
- The end client will be responsible for determining whether the role is ‘inside’ or ‘outside’ of IR35. HMRC’s Check Employment Status for Tax (CEST) tool can help with assessments.
- The fee payer will be responsible for accounting for the correct tax and NICs when required to do so. The fee payer is whoever is responsible for paying the PSC – this could be the end client or an intermediary, such as a recruitment agency. This will also include any responsibilities in regard to employer’s NICs, the apprenticeship levy etc.
- If the end client fails to take “reasonable care” in reaching a status determination and is later challenged by HMRC, the liability for unpaid tax and NICs could pass up the chain. Further information relating to what is classed as ‘reasonable care’ can be found on the Government website.
- The client is required to send the status determination and decision to anyone in the supply chain, including the contractor.
- The contractor has the legal right to appeal the determination outcome, and it is the client’s responsibility to respond to the appeal within 45 days, in writing, outlining the reasons, and final outcome.
In order to support you further, Astute has provided a range of videos, speaking to leading experts on the changes to the legislation, how it affects clients and contractors and what needs to be considered.
We appreciate that for many businesses this is a burden that is coming at exactly the wrong time. Let us help you by reducing the workload. If you have any questions, comments or queries, please do not hesitate to get in touch firstname.lastname@example.org
Similarly, if you want to discuss how our range of recruitment services can help you get ahead, then please let us know by phoning 02392 221600 or emailing Info@AstuteTechnical.co.uk