What is IR35?
- IR35 is a Tax Legislation which changes have now been postponed until April 2021 from 2020, these changes already apply to the public sector.
What is happening in April?
- From April 2021 it is now the clients’ responsibility and liability to determine if a contract is in or out of scope of IR35.
- The aim of this change is to make sure all ‘disguised employees’ are paying the correct tax.
- A disguised employee is a contractor that works via their own Ltd company or umbrella company, however they would be deemed an employee because of the way the company treats and interacts with them.
What do we all need to do?
- The client must determine if a contract and subsequently, the worker, is in or out of scope of IR35 and they must advise the rest of the supply chain.
- GOV.UK have released this tool to help the client determine in and out of scope: Click Here
- If the worker is determined out of scope, there is no action required – it is a true consultant arrangement
- If the worker is in scope then they will need to start paying the correct PAYE and NI accordingly, but the fee payer is responsible for deducting this.
Who is the fee payer?
- Whoever pays the contractor. It could be the recruitment agency or the client themselves or an umbrella company.
How would you tell the difference between in and out of scope?
Out of Scope Contractor:
- Set own hours
- Use their own equipment
- Have flexibility around location
- Can substitute an equally qualified contractor if needed – through their limited company
- Are not subject to Supervision, Direction or Control in their day to day duties
In Scope Contractors:
- Set hours directed by company
- Have a fixed location
- Use of the company’s equipment
- Cannot substitute anyone in their place
- Are subject to Supervision, Direction & Control in how they carry out their duties
What are the risks if the Client deems all their contractors in scope?
- Contractors will end up paying more tax when they might not need to
- Contractors may hand their notice in – This could cause significant implications to the client’s project
- The contractor may appeal the client’s decision
- Contractors may demand a fee increase to cover their new tax obligations
- Every role won’t necessarily be caught by these changes and “out of scope” roles will be highly desirable (Clearwater will be able to advise how best to advertise and fill these roles).
How can Clearwater support you as their client?
- Clearwater People Solutions can payroll contractors, ensuring all PAYE and NI is correctly deducted.
- We can advise on the new tax obligations contractors may face come April
- We can help assess current work force and liabilities
- We are currently assessing possible 3rd parties to assist with a more reliable decision tool
- The client can protect themselves by implementing Clearwater into their supply chain, putting Clearwater between the client and the contractor means we become the “Fee payer” which will remove part of the client’s liability.
- Our contracts are already IR35 friendly and HMRC won’t be back dating any reviews into contracts before April 2020.
If you have any more questions on how Clearwater can support you through these changes, please call the office on 01293 217444, speak to Emily and she will arrange a call back with your Account Consultant.
Please note you will need to seek your own legal advice, the purpose of this document is to raise awareness of IR35 and is not intended to advise any decision you or your company may make. To read further: Click Here