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 the client 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 your IR35 status:
Inside (the IR35 rules apply), you are 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) you are 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, your true working practice for example, do you assume true business risk (and mitigate accordingly, by the carrying of an appropriate insurance provision that will respond in the event of a claim against you for the services you provide) alongside what is really 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:
If you secure an assignment with a ‘small company,’ you will continue to determine your own status after April 2020.
There remains the potential to continue working through your limited company. It is thought that around a third of contractors will be affected so many roles will remain as outside of IR35 but this determination will ultimately rest with the end client. The onus will be on them to get this right. If your role is ultimately inside of IR35, this should be the case for any end client BUT if you believe otherwise, challenge the determination. Ultimately, a client calling all roles inside of IR35 regardless of whether this is correct, risks losing contractors to competitors who have a more robust determination process in place.
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.
There will be increased due diligence required from the end client and/or the agency where they are present in the supply chain and then in turn the contractor for all roles deemed outside of IR35. There will likely be a test of ‘reasonable care’ and a requirement for a contractor to amongst other things, provide an independent IR35 assessment as a minimum.
Alternatively, if you current contracting role/skill set is likely to be called inside of the rules and this is not a way in which would like to work there is the option to:
Stream Resourcing currently offer 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 above or just a wider conversation around opportunities, please contact Darren Day at email@example.com. We have been living and breathing IR35 for almost 20 years now, let us help!