IR35 tax rules are changing. With the Covid-19 crisis continuing, it may have slipped off the radar for many that changes placing responsibility on private sector companies to determine consultants’ and contractors’ status for tax are coming in on April 6.
From April 6 companies will be required to complete a ‘status determination’ for each of their consultants or contractors that are providing services via a personal service company. If the outcome is that the consultant or contractor should in fact be treated as employed, it is then for the company to ensure they are placed on payroll and taxed appropriately.
This deadline is now fast approaching and you must not let these changes slip off your radar. Medium and large-sized private bodies who engage with off-payroll workers through intermediaries or PSCs will be required to determine their status and whether or not tax and national insurance should be paid. It will be the end user client who has responsibility for making this assessment, regardless of how many other bodies are between the worker and the client. If there are agencies in between, then they will be advised of the status of the off-payroll worker by their client and will need to make the subsequent administrative adjustments to pay.
How is IR35 assessed?
The new rules are complex but essentially the question a company will need to ask, when using a personal service company to provide services to it, is “whether the person working under that arrangement (ie the worker) would be regarded as an employee if the services had been provided under a contract agreed directly between the worker and the company”.
In practice, this is likely to prove a tricky task, particularly with work relationships that have factors which both point to and point away from, IR35.
The Government has introduced a self-check tool to help companies with this assessment. Known as CEST (Check Employment Status for Tax) it can be found online and is free to use. However, this tool has limitations. While the CEST tool is a helpful starting point, companies who use PSCs are at risk of penalties if they do not make assessments properly and should always seek professional advice to protect themselves and to sense check the results.
Next steps – what should companies do now regarding their contractors and consultants?
All companies should act now to:
- Review their consultants and contractors and identify those that may be caught
- Evaluate and group their consultants/contractors into similar types of contracts and risk (for example those that work regular hours will be higher risk)
- Obtain information to assess IR35 from each consultant/contractor
- Carry out the required status checks to determine if each consultant/contractor is caught
- Notify all consultants/contractors of the outcome of the status determination checks
- Implement changes to status and contract terms where required
- Record all assessments to demonstrate compliance.
- Companies must ensure that they have complied with these requirements by April 6. The sooner these assessments are undertaken, the more opportunity clients and consultants/contractors will have to ensure any adjustments to current arrangements can be made in good time.
Paris Smith LLP is able to assist to guide you through this process, provide you with key documents you need and help you undertake or review individual assessments. If you are interested in discussing IR35 and its implications for your business, contact:
Tabytha Cunningham or Charlotte Farrell: