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In so many ways the global pandemic has made running an organisation or business so much harder during these past 10 months. There are very few exceptions to this rule but the delay of the application of IR35 to the private sector must surely be one of them.
What is IR35?
IR35, or off-payroll working rules, sought to remedy the following mischief; HMRC was losing millions through tax avoidance by organisations (the client/end-user) who were hiring individuals to carry out work through an intermediary such as a personal services company (PSC). The individuals were, in reality, treated as employees, but the client/end-user was not paying them under PAYE nor national insurance contributions, rather the individual was taking dividends out of their company, the intermediary.
Under current IR35 in the private sector, the responsibility for accounting for tax payable lies with the intermediary. There have been many high-profile media cases where the HMRC has gone after PSCs owned by TV presenters and personalities; Lorraine Kelly’s case was reported at length. From April 2021, the responsibility will shift from intermediary to end-user. This shift occurred in the public sector in April 2017 and now it’s the private sector’s turn.
When will it apply?
The new rules apply if:
- An individual personally performs services for a client/end-user (or is obliged to do so);
- Those services are provided under arrangements involving an "intermediary"; and
- The circumstances are such that if the arrangements had been made directly between the individual and the client/end-user, the individual would have been regarded as employed (for tax purposes) by the end-user if they were contracted directly.
What preparation is required?
Carry out an audit of all contracted work or work paid for through intermediaries; could those being paid in this way be "deemed employees"?
- Use the HMRC CEST tool to assess this;
- Assess with each potentially deemed employee whether 1) there is any mutuality of obligation i.e. is the individual obliged to work for the end-user and is the end-user obliged to provide work? 2) what is the element of control i.e. does the individual have to wear the end-users uniform, has to carry out the work in accordance with the end-users time frame and instructions? 3) does the individual have to carry out the work themselves? If the answer to these questions is yes then the individual is more likely to be a deemed employee.
What action is required?
Once deemed employees have been identified, the client/end-user must issue a status determination status (SDS) to the individuals and the intermediaries giving reasons for the findings. For any ongoing contracts, this needs to be done before the due date for the first payment under the contract after 6 April 2021. For new contracts, status should be determined before services are performed under the contract and, ideally, before the contract is signed.
More assistance required?
The intricacies and ramifications for this change on business and organisations are far greater than this summary so please do contact any member of the employment and pensions team if you need further advice on preparing for April 2021.
For more information
For further information in relation to any of the above, please contact your relevant ACS contact or Faye Rush.
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