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In our previous blog, we explored the new IR35 off-payroll rules that came into effect for medium and large-sized businesses in the private sector.
To recap, IR35 means that when engaged via an intermediary (a limited company or personal services company) under terms and conditions that are indicative of employment, Pay As You Earn (PAYE) and National Insurance Contributions (NICs) apply to any payments received under that contract.
As of 6 April 2021, medium and large-sized businesses assumed legal responsibility for determining whether IR35 applied to their contractors and consultants. For workers in the public sector, these rules have been in place since April 2017.
Despite the changes being delayed for 12 months due to the pandemic, giving businesses more time to prepare, there’s still confusion with regards to which internal departments take responsibility for making status determinations and, crucially, how to determine whether a worker falls ‘inside’ or ‘outside’ of IR35.
The first port of call for any business to test whether an assignment falls inside or outside the legislation is the CEST tool, managed and curated by HMRC. To use this, you’ll need to know:
The details of the contract
The worker’s responsibilities
Who decides what work needs doing
Who decides when, where and how the work is done
How the worker will be paid
If the engagement includes any corporate benefits or reimbursement for expenses.
However, businesses (end clients) can get an idea of whether an assignment qualifies as ‘outside’ IR35 if it meets the following conditions:
Independence. The end client does not supervise, direct or control how the contractor delivers the services. Let’s break that down:
Supervision is the extent to which you oversee a contractor’s work, and whether they perform it to a standard you have specified.
Direction means you’re directing the consultant on how to complete the assignment, using instructions, guidance, and advice on how the work should be done.
Control is where you dictate the work that needs to be done and how the worker completes it. This also includes moving them from task-to-task as priorities change.
Substitution. The contractor can provide a substitute if they are unable or unwilling to do the work, and you, as the end client, have no right of veto, providing the substitute has the right skills/qualifications. This needs to be something that can be practised in reality and not just written into an agreement.
Exclusivity. The contractor is not prevented from performing paid work for more than one client concurrently. This also needs to be in the contract.
Mutuality of Obligation. During the engagement, the contractor has no obligation to provide any services outside of those documented on the Statement of Work. Additionally, at the end of the contract, there’s no obligation for you to offer more work, and if you did offer more work, there’s no obligation for the contractor to accept it.
Financial risk. The contractor demonstrates that they are taking a financial, proving that they are in business on their own account. So, if you require any rework, it’s carried out at the contractor’s own cost and expenses.
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.