IR35 in the Private Sector

What Are Your IR35 Options?

 

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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 became 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 was widespread non-compliance, as HMRC believed that less than 10% of UK’s contingent workforce applied the rules correctly. This roll out into the Private Sector followed suit of the Public Sector, which experienced this change back in 2017.
  • What were the changes to IR35 on the 6th of April?

    IR35 itself didn't change. If a contractor had been correctly assessed as outside IR35 before April 2021, they will remain outside today.

    What changed was 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 after the 6th of April?

    The “receiver of services” is now 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 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.

 

*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

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

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

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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COVID-19’s Effect on IR35: Should You Reassess Your Plans?

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Services Procurement — The IR35 Danger You Overlooked

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IR35 Reforms Incoming: What Can We Expect?