IR35 in the Private Sector

Navigating the Road to IR35 Together

 

 

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The countdown to IR35 April 2021 is on:

 

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  • What is IR35?

    IR35 is a tax legislation that was introduced in the year 2000. It requires contingent workers to determine their own employment status and thus pay the associated tax and National Insurance Contributions.

    From April 2021, a business as the end user will become responsible for this determination, as it is deemed best able to judge if the contingent worker is essentially acting as an employee, or if there is a true business-to-business outsourced relationship.

    The background to the change is widespread non-compliance, as HMRC believe that less than 10% of UK’s contingent workforce apply the rules correctly. This roll out into the Private Sector follows suit of the Public Sector, who experienced this change back in 2017.
  • What are the changes to IR35 from the 6th of April?

    IR35 itself isn’t changing. If a contractor has been correctly assessed as outside IR35 today, they will remain outside after April 2021.

    What is changing is the responsibility for determining a contractor’s IR35 status. If you're engaging contractors, this now sits with your organisation as the end hirer. You'll need to provide the contractor with an outcome and a Status Determination Statement to explain how you arrived at that outcome.
  • What is required of a business from the 6th of April?

    The “receiver of services” will be responsible for determining every contingent workers’ status as either ‘Inside’ (acting as a deemed employee) or ‘Outside’ (an outsourced service from a business to another business).

    Once determined, the “receiver of services” will work with its vendors to make sure that these resources are engaged appropriately once the change in execution takes effect.
  • How can I determine IR35 status of workers?

    Determining the outcome of an IR35 status assessment involves applying three main principles: control, substitution and mutuality of obligation. These are known as the principal ‘tests of employment':

    Other factors are then considered to determine whether an assignment falls inside of IR35. These factors include the contract type, whether the worker/PSC is taking on financial risk if they are seen to be ‘part and parcel’ of the engager’s organisation, being in business on their account, and the provision of equipment.
  • What happens if there is continued non-compliance of IR35?

    If HMRC investigate and find that a contingent worker is operating as if they are ‘outside’ of IR35 when they should really be ‘inside’, then HMRC can hold a business responsible for all unpaid taxes associated with that individual.
  • How will HMRC check IR35 compliance?

    An important point to note is that the written contract between the contractor and the end client could meet all the criteria in terms of IR35, demonstrating key areas such as substitution, control, non-exclusivity and mutuality of obligation, but this will also need to be proven in practice. Although the written contract remains essential in determining status, during an IR35 enquiry, HMRC will look closely into working practices, too.
  • What happens to my current contractor(s) on the 6th April?

    If your current contractor(s) finish before this change in legislation, then no action is required. They can stay as they are currently engaged as long as their end date is on or before 6th April 2021.

    If the scope for your contractor goes beyond April 2021, then they will need to move to a PAYE engagement (PAYE sole or PAYE via an umbrella company).
  • What impact does IR35 have on business costs?

    Once engaged via PAYE, both employee and employer taxes must be considered. The contractor will be responsible for paying the appropriate amount of employee taxes, and there will be an additional cost to a business of the employer’s taxes and National Insurance contributions because of this change in legislation.
  • Will IR35 affect my current contractor's tenure?

    No. If there is a tenure in place, then it will not change. The new engagement under PAYE will not reduce or change their current tenure end date. Their assignment in this respect will continue as originally planned.
  • How should my organisation prepare for IR35?

    Firstly, we recommend that you leverage external expertise if you do not have it in-house. With that being said, there are a number of tangible steps that you can take:

    • Engage with and educate key stakeholders in the business.

    • Identify all potentially affected contractors (contingent labour and workers under a SOW).

    • Estimate any likely cost increases due to NIC and apprenticeship levy charges.

    • Identify and document your determination and audit process for the incumbent population.

    • Create and document a dispute process for incumbent determinations.

    • Build an in scope/out of scope pre-determined rate card for roles released post-April 2021 where a determination of requirements has already been made.

    • Ensure your supply base can offer both PAYE and “deemed employee” engagement types.

    • Develop and implement new systems and processes to ensure compliance.

 

*This information is intended for general information and guidance only. Anyone requiring specific or detailed legal advice should seek the expertise of an independent lawyer.

what are your ir35 options 

 

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Confused about the number of tools and resources related to IR35? We've curated this list for you.

How pandemic work practices have affected IR35 NEW

Education and support on the changes to off-payroll working rules

Interpretation of section 61O and the conditions where the intermediary is a company

"UK - Calls for abolition of IR35"

April 2021 changes to off-payroll working for clients

Understanding off-payroll working (IR35)

CEST tool

whats changing with ir35

 

the IR35 risk in services procurement

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IR35 Reforms Incoming: What Can We Expect?