General IR35 guidance
Focus on IR35
From 6th April 2020, there are Changes to the IR35 rules which will be significant for Contractors and clients in equal measures. It is essential you are aware of the changes and how they will affect the way you work or the way you treat your workers.
New IR35 rules
What are the new rules to consider when hiring or undertaking a Contract and who is responsible for enforcing them?
The responsibility for assessing IR35 tax status is now the joint responsibility of the Contractor and the hiring organisation. The consequence is that any unpaid tax can be collected from both parties if an error is discovered.
If HMRC determine to investigate a Contractor or End Business, the investigation can be backdated by up to six years and owed tax from that period will be claimed back.
Organisations with annual turnover of up to £10.2m, a balance sheet total of up to £5.1m or an average number of employees of up to 50, are exempt.
HMRC will as always provide support and guidance to help implement the rules and ensure specific guidance to the private sector. For additional HMRC guidance, click here.
Determining your IR35 status
The simplest way to determine IR35 status as an End Business or Contractors is to use the redeveloped HMRC online employment status tool (CEST) click here
The following determinants are used to test IR35 eligibility.
- Substitution - Can the contractor or the direct client substitute someone to complete works in the contractors' place. This indicates the Contractor is not delivering a personal service, and therefore isn’t a disguised employee.
- Control - Does the end business control the workload of the contractor? or how the work is carried out, if so, they are inside IR35 by not providing a specialist service as a contractor.
- Mutuality of obligation (MOO) - If both the contractor and end user pass the tests of control and Substitution, it will be unlikely that Mutuality of Obligation applies as it will fall outside of IR35.
- Risk – If a contractor can experience financial loss or make a profit it is likely they fall is outside IR35.
The responsibility for IR35 is now the End User and the Contractors responsibility. End user clients must determine and potentially pay for contractors that could be deemed as “disguised employees”. Contractors must also determine and declare their IR35 status
If you are investigated by HMRC and found to be inside IR35 when you have stated the contrary, then both the contractor and the end user client will be held liable, and ordered to pay any unpaid tax from up to six years prior to the investigation taking place.
These changes will ensure that both parties are paying the correct amount of tax and national insurance and that future contracts of employment are fully considered by both involved parties. Placing direct responsibility on both the employer and end user client requires all to re-evaluate their responsibilities under IR35 rules.
The information above is for general information purposes only it does not constitute legal advice. Specialist legal advice should be taken in relation to your circumstances.