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New IR35 off-payroll rules for medium and larger-sized businesses came into effect this April, following a 2017 roll-out for the public sector.
The reform sees responsibility transferred from private sector contractors to the companies that employ them to assess IR35 status to determine whether they should be taxed as a regular employee. Despite backlash from contractors, associations, MPs and even the House of Lords, the rules are now in place, and contractors and businesses must respond appropriately.
Unfortunately, the response from some organisations has been to impose a blanket ban on hiring contractors outside IR35 in an attempt to avoid falling foul of the legislation and being penalised with hefty fines. However, such knee-jerk action could have dire consequences as these businesses will lose access to a vital skilled workforce.
To put things into perspective, HMRC pushed through IR35 reforms because one-third of limited company contractors were reported to be working not compliantly. A concern? Absolutely, but it means that two-thirds were working compliantly. As such, a blanket ban on contractors is hasty and short-sighted.
With the right preparation, the reforms are manageable. Businesses investing in systems and processes that enable them to accurately assess IR35 status can continue accessing crucial skills. To help, here’s a starting point:
Who do the rules actually apply to?
They apply to all public sector organisations and private sector companies (end clients) that meet two or more of the following conditions:
Annual turnover of more than £10.2 millionBalance sheet total of more than £5.1 millionHave more than 50 employees.
Small-sized end clients in the private sector are not required to decide the employment status of their workers. This remains the responsibility of the worker’s intermediary/PSC.
What you need to do
End clients need to determine the employment status of every worker operating through their own intermediary, even if they are provided through an agency. A determination should be communicated using a Status Determination Statement (SDS), which must:
Be passed to the worker and the person or organisation you contract withGive your conclusion and the reasons for coming to it.
You’ll also need to:
Make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paidHave processes in place to deal with any disagreements that arise from your determinationConfirm your organisation's size if asked by the person or organisation you contract with, or the worker.
Who to tell about your determination
You must tell the worker and the agency, or other organisation you contract with, your determination, whether it shows the off-payroll working rules apply or not. You must also give reasons for the determination.
The responsibility for deducting Income Tax and National Insurance contributions, and paying National Insurance contributions, is yours until you tell the worker and the person or organisation you contract with of the outcome and the reasons for it.
Remember that should the working practices of the engagement change or a new contract is negotiated with the worker, you must re-check the rules to see if they still apply.
You can read more on the Gov.UK website.
Need some help?
Our team at NWM are experts in IR35 and other relevant legislation, ensuring you remain informed and always on the right side of the law. If you have any questions or want to find out more, contact the team on 0330 333 4240 or head over to the NWM website.