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IR35 Factsheet (changes postponed until 2021)

Reasons to choose Wilson Browne

There are a number of forthcoming changes within employment legislation that will be implemented from 6th April 2020 [NOW DELAYED UNTIL 2021 DUE TO CORONAVIRUS]

In this factsheet we discuss the changes to the IR35 rules.

First, a brief explanation of the key IR35 terms:

Term Definition

End User/client: An organisation that uses the services of an intermediary.

Intermediary: Where a service is provided through a personal service company.

Worker: An individual who provides a service

Status Determination Statement: Decision on whether the IR35 rules apply or not.

 

What is IR35?

IR35 was introduced to enable HRMC to collect additional tax and national insurance payments where a contractor is an employee in all but name. Previously individuals could seek to avoid paying tax and national insurance contributions by supplying their services through an intermediary or a personal service company, and then paying themselves in the form of dividends. IR35 aimed to effectively close this loophole.

What are the Changes?

From 6th April 2020 the IR35 rules change so that liability will always rest with the End Client for those working in the private sector, previously under IR35, liability rested with the Intermediary. However, the new rules will not apply to small companies provided they meet specific requirements.

In order to assess whether or not IR35 applies organisations who use the services of an intermediary will be responsible for determining whether or not a contractor falls inside or outside the IR35 boundary. For this assessment to be made the End Client will need to do the following:

  1. Consider what contractual/working arrangements are currently in place using reasonable care and skill an analysis of a contractor’s employment status.
  2. Issue a Status Determination Statement on completion of the contractor employment status analysis.
  3. Make arrangements for collecting tax and national insurance, where applicable.
  4. If the contractor falls outside the IR35 boundary, the contractor continues to operate via their personal services company, and pay tax and insurance payments.
  5. Deal with any appeals by contractors in accordance with the new appeals framework.

How to prepare?

In order to ensure preparation for the changes it is important that End Clients do the following:

  1. Identify a process on how status determinations will be made. The HMRC have produced a tool called CEST which can assist organisations to determine whether or not IR35 applies. However, the tool does have its limitations but can serve as a useful starting point to help make an assessment.
  2. Identify the person who will take responsibility of making status Determinations and who will be responsible for dealing with any appeals.
  3. Establish an appeal process.
  4. Review and make any necessary changes to pay roll systems.
  5. Ensure there is a paper trail of the processes followed.
  6. Keep up to date with the law.

If you require further information call our Employment team on 0800 088 6004.

Jennie Jahina

Posted:

Jennie Jahina

Partner

Jennie is a Partner and Head of the Employment team.  A member of the Employment Lawyers Association, Jennie has 21 years’ experience and is an accredited CEDR Mediator. She acts for private sector organisations ranging from SMEs to multi-national companies and public sector organisations.