What is IR35
The off-payroll working rules – commonly known as IR35 – is designed by Government to combat tax avoidance by workers supplying their services via an intermediary, such as a Limited Company, or Personal Services Company (PSC).
HMRC refers to such workers as ‘disguised employees’ as the worker would be classed as an employee had it not been for the Ltd Company through which they offer their service.
End Clients are now responsible for determining IR35
From April 2021, the responsibility for assessing whether IR35 applies on any flexible worker a client engages with, will shift from the individual to the end client.
The new rules will only apply to "medium and large businesses" where the qualifying conditions are met by a company that satisfies two, or more of the following requirements in it's last financial year in which it had:
Turnover more than £10.2 Million
Balance sheet more than £5.1 Million or
More than 50 employees.
The government states that "small organisations" will be exempt from the changes proposed for April 2021. Meaning that workers engaged in contracts with ‘small businesses’ will remain responsible for determining IR35 and not the client.
For workers whose assignments will fall inside IR35, PAYE and NI contributions will need to be deducted at source from their income by the ‘fee payer’ (agency or end client).
The end client is advised to communicate to the worker the IR35 status of their assignment.
Provided that everyone in the supply chain fulfills their responsibilities, the ‘fee payer’ will carry the liability.
Limited Company - If the role is determined to be ‘inside’ IR35, whoever the fee payer is, will be responsible for deducting the relevant Tax and NI contributions at source, before paying the Limited Company the Net amount.
Umbrella Payroll Company - Anyone supplying their services via an Umbrella Company does not fall into the legislation. This is because they are employed by the Umbrella Company and the relevant Income Tax and NI contributions are paid in the same way as any traditional employee.
Summary of IR35 changes:
New rules apply to private sector from April 2021
End client is responsible for determining IR35 status
"Small clients" are excluded from the new rules
End clients have a duty of ‘reasonable care’ when making a determination
End client to supply a Status Determination Statement citing reasons for decision
Client Led Status Disagreement process in place, whereby contractor can challenge status. The client has 45 days to respond
If the contractor is inside IR35 then the Fee Payer must deduct Tax and NI payments
Debt liabilities can pass back up the supply chain
How iCobus will safeguard it’s clients
Where iCobus provide contract workers, we will 1st determine if a client is potentially exempt from these IR35 off-payroll rules, if it's considered a small company as set out in sections 382 and 383 of the Companies Act 2006or is an overseas company with no UK connection.
Companies caught by the IR35 off-payroll rules, shall receive a Status Determination Statement request by email, simply to confirm if a piece of work falls inside, or outside IR35. This statement will determine how contract workers are to be engaged for tax purposes and ensure compliance.
These new tax rules are a serious concern for companies, but we would like to reassure our clients that iCobus remain a safe and compliant partner to use for the provision of any contract labour, inside or outside IR35.
We have a watertight and compliant solution in place, which will indemnify our clients against any unpaid workers tax, national insurances and fines for getting the decisions wrong.