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5 things clients and contractors need to know about IR35
Whether you're a contractor or an employer, RED's IR35 guide will help you navigate the legislation change on 6th April.
How will it impact your earnings? What legal obligations might the legislation bring? What are the necessary timeframes associated with IR35? These are just some of the questions you should be seeking out answers to before the implementation of the legislation.
Click the download button below to get your copy of the RED IR35 guide - 5 Things Clients & Contractors Need To Know About IR35.
The guide outlines the below information in more detail:
1. WHAT IS IR35 AND WHAT IS CHANGING IN APRIL 2021?
IR35 seeks to ensure that contractors working through their own PSCs pay employment taxes (PAYE) and National Insurance Contributions (NICs) where, if it were not for the PSC they work through, they would be considered as employed by the client for tax purposes (defined as “inside IR35”).
From April 2021, there will be two main changes in the legislation:
- The client will be responsible for determining whether a contractor is “inside” or “outside” IR35;
- The entity responsible for paying the contractor will be liable to account for tax and NICs (this may be the client in a direct relationship with the PSC or the agency if there is an agency in the supply chain).
2. ARE THERE ANY EXEMPTIONS AVAILABLE TO THE CLIENT?
Small Company Exemption
The new IR35 rules will only affect medium and large private sector organisations. Small companies (as defined in s382 Companies Act 2006) are exempt.
If the client is based wholly overseas and has no UK connection in the form of being a UK resident or having a permanent establishment in the UK, then the contractor’s limited company (PSC) will remain responsible for making the status determination and deducting the appropriate taxes.
If the client is located overseas but has a permanent establishment in the UK (a branch, an office or an agent for example), they will be required to undertake the IR35 status determination.
3. IS A PLACEMENT “INSIDE” OR “OUTSIDE IR35”?
Making the determination – CEST Tool or RED’s Tool?
HMRC has developed an online assessment called the CEST tool (Check Employment Status for Tax). It allows clients to check the employment status of their contractors and see how HMRC would treat them (as employed or self-employed).
Alternatively, RED has developed a cost neutral IR35 assessment tool with insurance protection, that provides peace of mind and ease of transaction for its clients, whilst also diminishing exposure for all parties in the supply chain (see point 5 below for more details).
Reasonable care and prohibition of blanket rules
When clients make a status determination for each contractor assignment, they must ensure that they have taken “reasonable care”, which HMRC have outlined the basic principles of here.
If they do not exercise reasonable care, their status determination statement will not be valid, and they will be liable for the unpaid taxes.
Four Key Tests
To determine whether a contractor is “inside” or “outside” IR35, clients will have to review the following key criteria in order to establish their status.
- Mutuality of obligations
- Right of substitution for the contractor
- Supervision and control
- Financial risk
4. WHAT ARE THE OPTIONS AVAILABLE?
There are various engagement models for the client and the contractor to choose from.
- PSC contractors qualified as “outside IR35”
- SOW contracts
- Permanent hire
- PAYE payroll
- Deemed model
5. WHAT IS NEXT?
Supply chain review and communication
Clients should review their contingent workforce and assess which contractors are “business critical” and required post-April 2021.
Then, audit the types of contractors they currently use (payroll and off payroll models), the types of roles that they need to fill across their lines of business and start consulting with RED on our best approach.
It is paramount that they try to determine where their contractors are likely to land with regards to the IR35 legislation as soon as possible. RED is here to help with this process.
IR35 Assessment Tool
We provide IR35 status reviews using an online status determination tool produced by our partner JSA Group. This IR35 solution combines an automated review process with in-house support to give the most accurate IR35 result and guidance available.
IR35 Insurance for “outside IR35” PSC
Genuine “outside IR35” contractors represent a vibrant and increasingly important part of our economy.
They should be able to carry on working outside IR35 after April 2021 if they are authentic self-employed workers and RED is eager to support them in their journey.
We have partnered with several insurance experts in the UK to offer the most appropriate products to our contractors, ensuring adequate protection from the risks involved in an IR35 enquiry (defence costs, taxes, interest, and penalties deemed payable by HMRC).
To learn more about the things clients and contractors should know about IR35, click below to download our detailed guide.
This guidance is intended for use by RED clients only. The facts, information, and opinions contained herein are correct to the best of RED’s knowledge as at time of publication. This document is intended to provide general information only and does not constitute advice. It is not an exhaustive and complete reference document on this subject. RED can take no responsibility or liability for the use of or reliance on the information contained within this document or for any decisions or the consequences of any such decisions made by RED clients and contractors.
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