What is IR35?
IR35 is a Tax Legislation. From April 2021 it is no longer the contractor’s responsibility to determine if they are in or out of scope. 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 however they would be deemed an employee because of the way the company treats and interacts with them.
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: https://www.tax.service.gov.uk/check-employment-status-for-tax/about-you
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 tax obligations contractors face.
•We can help assess current work force and liabilities.
•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.
If you have any more questions on how Clearwater can support you through these changes, please call the office on 01293 217444.
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.
Agency Workers Regulations (AWR)
The Agency Workers Regulations 2010 (AWR) are designed to tackle discrimination against agency workers in the workplace and their often poor terms and conditions. The Regulations give temporary agency workers the following rights.
From day one of an assignment, temporary agency workers have a right to:
•Equal access to collective facilities provided by the hirer (such as canteens, staff rooms, toilet and shower facilities, workplace crèches, car parking and transport services); and
•Information about, and the opportunity to apply for, vacancies in the hirer's workplace.
After 12 weeks (the 'qualifying period') in the same role with the same hirer, temporary agency workers have the right to:
•Equal treatment on pay, holidays and working time; and
•Improved pregnancy rights.
These rights only apply to temporary agency workers. They do not apply to those seeking permanent work through an agency, nor do they apply to the genuinely self-employed who are running their own business.
Employers used to be able to escape temporary agency workers’ rights to equal pay (but not equal holidays and working time) by using a mechanism known as the ‘Swedish derogation’ which involved employees being paid a minimum amount (at least the National Minimum Wage) between each assignment. In April 2020, this ‘Swedish derogation’ exemption was abolished as a result of campaigning by the trade union movement. It is no longer possible for employers to exclude agency workers’ equal pay rights by providing ‘pay-between-assignments’ contracts.
AWR applies to both full and part-time workers; please seek advice on whether you are considered in or out of scope.
Conduct Regs Opting Out
Limited company contractors are able to “opt out” of these Regulations.
Submitting an Opt-Out statement before you start your new assignment, will give the Agency notice to Opt Out of the Regulations. If you opt out, then the Regulations will not apply to the dealings between you and us.
Pros – The Advantages of Opting Out
•No increase in administration or forms to complete which could result in increased margins/costs to you
•Avoid potential delays in starting your assignments
•Less statutory restriction on your ability to substitute or sub-contract
•Avoid any implication that you are under the client’s control at all times (although you may agree to be)
•It will assist in demonstrating that you operate outside IR35
•Easier to show you are in business on your own account
•It increases your marketability to clients and recruiters looking to reduce administration and place candidates quickly
•Only one negotiation of contract terms in each case (rather than at the outset and at point of assignment)
•Less requirements on you to provide information and confirmations
•More attractive to umbrellas and limited companies as they avoid increased statutory requirements
Cons – The Disadvantages of Opting Out
•No additional protection regarding potentially onerous contract terms (existing statutory protection remains)
•No statutory entitlement to information regarding health and safety (although our Terms deal with this)
•No minimal protection when required to work away from home
•No added protection regarding confidentiality (although Data Protection Act still applies)
Aside from the above, you will also need to consider other rules, circumstances and regulations relevant to you such as VAT and insurance. Before venturing into the world as a contractor you should consult with a specialist in regard to all these issues.