IR35 is the more familiar term for the Intermediaries Legislation (originally introduced as part of the Finance Act in 2000). It is tax legislation brought in to combat disguised employment.
One of the major concerns regarding IR35 is how complicated it is. Some roles are very distinctly either inside or outside of the rules but boundaries can be ambiguous. It can make assessing status difficult even for those who understand the legislation well.
In the private sector, individual limited company contractors (PSCs) can determine their own IR35 status.
In the public sector, assignments are assessed by the end client to determine whether they are inside or outside of IR35. The feepayer, either you if you are contracting directly or the agency if they are part of the supply chain, then applies this determination and in turn, the correct payment mechanism. The feepayer remains liable if, in the event of an HMRC investigation the determination is found to be wrong.
In short, this indicates a contractor’s IR35 status:
Inside (the IR35 rules apply), a contractor is perceived as an employee for tax purposes so all deductions i.e. tax and National Insurance (NI) must be made at source
Compliant methods of engagement
Outside (the IR35 rules do not apply) a contractor is perceived as being a genuine contractor for tax purposes
Compliant methods of engagement
There are roughly a dozen but the key ones are:
It is important to remember that contracts alone do not determine IR35 status. More than ever, true working practice i.e. what is actually happening on the ground must reflect the tax status that is being claimed.
Draft legislation was released on the 11th July 2019 with final legislation expected in the Autumn. It will come into law on the 6th April 2020.
At present, the reforms will be similar to those introduced in the public sector in April 2017. Legislation will move the responsibility from the PSC and place an obligation on the end client to assess the IR35 status of a role/assignment. It will then be the feepayer who is responsible/liable for applying that determination.
The client will need to be able to demonstrate that they have taken ‘reasonable care’ when making their determination.
Draft legislation confirms:
There remains the potential to continue working with contractors engaged through their limited companies. It is thought that around a third of contractors will be affected so many roles will remain as outside of IR35 but this determination ultimately rests with you.
HMRC has provided a Check for Employment Status for Tax (CEST) tool that end clients, agencies and contractors can use to help determine their status. Unfortunately, it has been widely criticised as ineffective for roles that are not clearly inside or outside. Encouragingly, since the initial introduction of the reforms to the public sector, there are now many other avenues for support in making determinations. They key issue is that you must take and be able to evidence that you have taken ‘Reasonable Care’ when making the determination otherwise you risk liability moving up the supply chain to you.
You will need to provide this determination (Status Determination Statement) to your supply chain.
This term was introduced to reinforce the importance of not just making blanket decisions about job roles but to truly understand what it is for a role to be either inside or outside of IR35 and apply it accurately. As an end client:
There is a widely held opinion that after April 2020, contractors will have nowhere else to go so will have to accept whatever determination is offered. However, feedback from the contracting marketplace suggests that many are considering:
Blackfield Associates currently offers opportunities in all areas and will also shortly be engaging with a new partner to help support IR35 assessments and provide guidance moving forward. If you have any questions, would like any clarity around some of the issues outlined here or would just welcome a wider conversation, please contact Darren Day at firstname.lastname@example.org. We have been living and breathing IR35 for almost 20 years now. Let us help!