As usual, when there is a top-level change in the way the system operates, there is a lot of confusion about what and who it applies to. In April this year, the next round of implementation of the new rules comes into play, so this seems like a good time to consider what the actual picture is around what the Government consider ‘off payroll’ workers now the scheme has been extended. The following is just an overview and not intended to be the final word in compliance. It is vital that any business or recruitment agency affected fully understand their own circumstances in relation to the guidance.
Just to briefly recap. The purpose of IR35 is to assess where the contractor is actually providing a service that could be considered working as an employee. There are various factors involved in deciding what criteria to apply, but basically, as I am sure everyone reading this will understand, if someone is contracted to provide a service, the service they provide must not result in them acting as a disguised employee. There is a link at the bottom of the article to the .gov information about what that means in practical terms.
What has changed, and what is on the cards for 2021?
The most significant change is that the IR35 tax implications will apply to mid-range and large business concerns in the UK from April. In the past, it has only applied to the public sector. It was initially scheduled for April 2020, but it was felt to be an unnecessary complication during the lockdown.
As many contract workers are supplied through what are termed ‘intermediaries’, the legislation accounts for this. Essentially, the fact that the intermediary recruiter supplies the contractor does not affect the decision, and the supplied worker is considered for IR35 exactly the same way as if they were contracted directly. This is because the decision of who is inside IR35 and therefore liable for National Insurance and Income Tax, or outside and still able to access the benefits of self-employment, lies with the business engaging the contractor. That is the case regardless of any intermediary, but, of course, the contracting business is going to look to the recruitment agency for guidance.
Once the decision is reached, a Status Determination Statement will be raised that clearly explains the reasons for the decision to the contractor. The contractor will then be at liberty to challenge the decision if they so wish.
HRMC will hold the end client responsible for any mistakes made in the decision process unless they can show that due care has been taken to ensure the response was accurate under current guidance.
Small businesses will not be required to assess IR35 for their contracted workers, and the old system where the contractor makes the decision on compliance will remain in place for the moment. What constitutes a small business is actually quite clear. To be considered a small business, you must be able to meet two of these three criteria:
- No more than 50 employees
- A balance sheet total of less than £5.1 million
- Turnover of not more than £10.2 million
As you can see from the above, for many businesses who use contractors through recruitment partners, the new rules will probably not apply.
For those businesses that have the requirement to assess IR35, whether through an intermediary or by directly contracting, there are bound to be all sorts of concerns about accidental infringement and compliance. Indeed, IR35 is often criticised for being unwieldy, difficult to understand and even more difficult to impose. The fact that a recent clarification document ran to 70 questions certainly suggests there are more than few grey areas.
All that adds up to a big change and one that is, unfortunately, coming in April right in the middle of recovering from the biggest disruption to trade in living memory.
Inevitably, all this will have a financial impact on the recruitment sector, so if you think we can help you with a financial solution to ease the transition, why not call us for a chat?
https://www.gov.uk/guidance/understanding-off-payroll-working-ir35