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What is IR35? Everything you need to know.

What is IR35? Everything you need to know.

20 Nov 14:00 by Sherrel Solomon

What is IR35? Everything you need to know.

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What is IR35? 

IR35 is a set of two tax legislations implemented to reduce the amount of ‘disguised employees’ within the UK. The purpose of IR35 is to combat tax avoidance by workers supplying services to clients via an intermediary, such as a limited company or a personal service company and the companies hiring them.

The IR35 legislation has already been implemented in the Public Sector and will be implemented in the Private Sector from 6th April 2020.

Who are Boden Resource?

We are a specialist recruiter within the Facilities Management, Property and Built Environment sectors across the UK and Ireland. We provide permanent and temporary recruitment solutions to FM service providers, end-user clients and specialist contractors.

Who are Brookson One? 

Brookson is a company that has supported the freelance market for almost 25 years. Brookson has over 15,000 limited company contractors where they act as their accountants and also support over 5,000 PAYE umbrella contractors. Within the Group, they have several specific divisions, ranging from contractor support, financial and legal services, with a wealth of back-office business solutions.

What are the implications of IR35?

There have been several amendments to IR35 in the Private Sector since its implementation from the Public Sector in 2017. While it may seem as ‘the end of contractors’ as we currently know it, there are still ways in which one can take advantage of the benefits of running a Personal Service Company or operating on an interim and contract basis.

Clients must understand that the “fee payer” (typically the agency or sometimes the end client) will be responsible for ensuring the correct deductions of the relevant tax and NICs are made for their contractor. Failure to do so can result in huge fines from HMRC - this has happened in the Public Sector with NHS Digital being hit with a hefty £4.3m fine.

Small companies will not be affected by the IR35 legislation changes. A small company is one which meets two of three of the following criteria:

  • Annual turnover of up to £10.2m
  • Balance sheet assets of up to £5.1m
  • Average number of employees of up to 50

We must work as a business partner with all clients and contractors in the lead up to and post-April 2020, to ensure that all IR35 requirements are being adhered to, but also to ensure clients do not have a considerable fall of contractors overnight.

How does this affect clients?

Under the current IR35 legislation, it is up to the Personal Service Company or limited company contractor to determine whether or not they fall inside or outside IR35. With the changes to IR35 in April 2020, the responsibility of determining the status of the contractor will now fall on the end clients.

Clients must start to think about the processes taken when they are recruiting for a contractor of any type and seniority. HR teams will need to begin training their internal teams and more importantly hiring managers on the changes and effects that IR35 has on the hiring and payroll processes.

Clients will also need to start liaising with third parties, agencies and contractors to ensure processes are in place. Decision-makers will need to be aware of the determination made on a contractor and that all stakeholders are informed adequately.

How to assess whether IR35 applies?

Testing whether a contractor falls inside or outside IR35 comes down to how a contractor is treated within a business. Here are three factors which are used to determine whether or not IR35 applies:

  1. Substitution – Is the contractor able to send a substitute to complete work in a contractor’s place? If the answer is “yes” this suggests the contractor isn’t providing a personal service and therefore isn’t a disguised employee.

  2. Control – Does the contractor report into a line manager? Does the contractor take instruction from a manager? If the answer is “yes” this would suggest the contractor is not providing a specialist service as a contractor, thus indicating the contractor acts as a disguised employee.

  3. Mutuality of obligation (MOO)  – There are no accepted definitions of this concept. However, it is best explained in an example. So, for example, a contractor has a project which is estimated to last six months but completed it within three months, the client is then not obligated to provide more work to the contractor, and the contractor is not obligated to accept further work from the client.

Where does liability sit?

If the client deals with a contractor direct without any intermediaries, then all the liability will fall on the client regardless of whether they have taken reasonable care.

If there is an agency involved in the hiring of a contractor, then the end-client will still be liable to take reasonable care and introduce an appropriate appeal process, if these steps are taken then liability will transfer to the agency.

For more guidance around preparing for IR35, please read more here.

Preparations for clients to consider when hiring contractors post-April 2020

As we know, this won’t be the end to hiring contractors but will be a massive shake-up to all industries, not just the FM sector. So, clients must understand the preparations they need to take now. Areas to consider are:

  1. Determining the status of Off-Payroll workers. Once the IR35 reform is introduced the end client will be responsible for determining the IR35 status of its contractors. The end client will also need to liaise with all parties to communicate the decisions made.

  2. Consult with Personal Service Companies / limited companies.  Communicating decisions made to all parties to ensure no walkouts is crucial.

  3. IR35 training. Ensure any internal resources or employees are fully aware of the rules of IR35.

  4. Liaise with third parties and agencies. Inform agencies of any determination that is made on a contractor, if the contractor is inside IR35, they will need to deduct correct PAYE and NI contributions as though the worker was a permanent employee.

How is Boden Resource and Brookson positioned to assist you? 

Brookson has a Legal division within the group ‘Brookson Legal Services’ (BLS), and this business has specialised within IR35 for 19 years, providing contractor reviews as well as supporting many Public Sector bodies – notably TfL and NHS. BLS sit on the HMRC IR35 forum and understand exactly what HMRC want from an IR35 perspective and have provided over 100,000 contract reviews.

To date, HMRC has agreed with Brookson on all IR35 contractor decisions and are well-positioned as an SRA regulated law firm, to help private sector companies, agencies and contractors remain compliant as they navigate through the off-payroll changes due in April 2020.

As a specialist recruiter to the FM and Property sectors, we are working with our clients to mitigate the risk in determining candidates In/Out IR35 status. We also continually work with all stakeholders to ensure you’re supported with the process of determining the status of your contractors.

IR35 Seminar

In this IR35 seminar, our specialist Contract and Interim team and Brookson One will provide guidance on how to manage the risks of hiring contractors post-April 2020 and how to implement effective processes to manage IR35.

We will be covering the following areas in this seminar:

  • The implications of IR35
  • How to assess the status of candidates (inside/outside IR35)
  • How we can assist you pre and post-April 2020
  Time: 
  17:00 - 18:30

  Location: 

 
  ISG, 33 Aldgate, High Street, London, EC3N 1AG
  Click here for directions


Book your place! 


This material is intended for general information purposes only and does not constitute legal advice. Specialist legal advice should be taken in relation to specific circumstances.