IR35 – are you ready to take the baton?

Friday 25th October 2019

Passing The Baton IR35

From 6 April 2020, changes to tax legislation regulating off-payroll working (commonly known as IR35) will come into effect. The new rules require larger private sector businesses to deduct income tax and national insurance contributions (NICs) via payroll from fees for services paid to an “intermediary” (usually a company or partnership), where the individual providing services would otherwise be regarded as an employee for tax purposes.

This is a change from the current position under which the intermediary (rather than the business engaging it) is liable for tax.

Over the past few years, there has been an increase in the number of contractors supplying services to businesses and the sums paid under these agreements can be significant. Businesses will need to take advice on dealing with the changes and their consequences.

Preparing for 6 April 2020

The first stage is to identify any off-payroll workers supplying services to the business and determine whether, if the intermediary did not exist, that worker would be an employee of the business for tax purposes. Once any such workers have been identified, the business will need to inform both the intermediary and the worker.

There are a number of factors used to determine employment status and you’ll need to take account of what actually happens in practice, as well as what the contract provides for. When advising businesses as to how they’ll be impacted by IR35, you’ll need to think about:

  • Control over what work is done and how, when and where it is done. For example, who decides what work is to be done, can the worker be moved to a different project or location or be asked to perform different tasks without varying the agreement?
  • Mutuality of obligation and length of employment – how is work offered and accepted? How long has the worker been working with the business and has this been on a continuous basis? Does the off-payroll worker carry out work for other clients?
  • Personal service/substitution – what happens if the worker cannot do the work (e.g. because he or she is on holiday or ill)? Can he/she send a substitute to carry out the work and, if so, can the business refuse to accept one?
  • Payment – does the business pay the worker for the hours worked or by a set fee for a project? Does it pay holiday, sickness or maternity pay?
  • Rights of termination – what are they and are there any consequences?
  • Integration – does the worker carry out work normally performed by an employee or employees? Does he/she have a line manager? Does the worker have an email address at the business?

For a more in-depth analysis and practical advice on preparing clients for the new regime don’t miss our new full-day course IR35: Off-Payroll Working from 2020.

 

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