In April, HMRC will be introducing heavier penalties to companies that are incorrectly assessing employment status.
Our expert team are on hand to advise your business on any concerns you have about the changing IR35 rules and employment status – complete the form to the right and our experts can reach out to you directly.
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IR35 is anti-tax avoidance legislation that aims to collect additional payment from employees “disguised” as contractors for tax avoidance purposes.
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The off-payroll working rules for public authorities first came into effect in April 2017 and have changed as of the 6th April 2021.
new responsibilities include:
As the client, you will be responsible for determining your contractor’s employment status for tax purposes.
You must determine your contractor’s employment status for tax purposes and provide them with a Status Determination Statement (SDS). You must take reasonable care in reaching your determination, which should be based on the contract and working arrangements.
You can use HMRC’s Check Employment Status for Tax (CEST) tool to help you determine what the contractor’s employment status for tax purposes is.
Where the rules apply, you must provide the contractor with a Status Determination Statement setting out your decision and the reason behind it. You also need to give this to the agency you engage with.
These IR35 rules and accompanying legislation were first brought in way back in the 1980’s, but have only recently started to affect the logistics industry as the rules have evolved in recent years.
Before IR35, employees of companies were being disguised as sub-contractors to lower avoid paying taxes such as (are there any others).
IR35 is designed to prevent tax evasion via a limited company structure & ensure that businesses and individuals pay the correct HMRC tax contributions.
IR35 rules apply to workers who are providing their services through their own limited company, otherwise known as a Personal Service Company (PSC) or an intermediary such as:
HMRC has set out three criteria to define medium to large-sized private business and it is important to note that if your business meets ANY TWO OF THE THREE criteria, then IR35 regulations apply to your company. These criteria are, you have:
As of April 2021, the rules around how IR35 status is determined changed. Now, medium to large-sized private sector clients, along with all public sector authorities, will be held responsible for deciding if the IR35 rules apply to their workers.
In the case of a worker providing services to small businesses in the private sector, the worker’s intermediary will be held responsible for deciding their employment status.
There are 3 main tests HMRC use to determine whether someone should be classed as self-employed and therefore falls inside or outside of IR35.
Supervision, direction and control:
This test relates to how much control the work provider has over how the work is completed. If, for example, an individual is required to work at certain times, this would usually imply that they are working under a contract of service.
Right to Substitute:
This test considers whether or not the individual could bring someone else in to complete the contract, or if they must complete the work themselves. If the contract requires the individual to undertake the work personally, using his or her own skill in the performance of a service, this will often indicate employment.
Mutuality of Obligations:
If you are obliged to accept further work offered by a company (or vice versa), then this will not reflect well in terms of self-employment.
Employee Benefits:
Things such as sick pay, holiday pay and other work perks which are traditionally enjoyed by employees need to be considered. If you are receiving any of these from a company then HMRC will consider you within IR35 as you’re receiving employee benefits.
