IR35 is a tax legislation designed to identify ‘disguised employees’ in the workplace i.e. off-payroll workers who behave and are treated like employees, but are not on the company payroll and therefore are unlikely to pay the same tax and insurance contributions.
IR35 is in place to ensure that ‘off-payroll workers’ whom are working like an employee pay broadly the same tax and National Insurance contributions as employees – these workers would be deemed to be inside the scope of IR35.
IR35 rules apply to off-payroll workers who are self-employed and operating under a Personal Service Company (PSC) i.e. a limited company that they own and control. It does not apply to sole-traders or PAYE agency workers.
Since April 2021, the IR35 off-payroll rules that were already in place for the public sector have now been applied to medium and large companies in the private sector too.
According to Gov.uk, IR35 applies to your business if you meet two or more of the following conditions:
an annual turnover of more than £10.2 million
a balance sheet total of more than £5.1 million
more than 50 employees
The off-payroll working rules also apply to:
third sector organisations, such as some charities
subsidiaries if the parent or the group is a medium or large business
connected and associated companies may also fall into IR35
What does IR35 mean for you as an employer that utilises off-payroll workers?
Until April 2021, off-payroll workers were still able to determine their status and therefore control their tax and national insurance contributions. Since April 2021, the responsibility for determining whether off-payroll workers are inside IR35 or outside IR35 has shifted to the end client i.e. the end-user of the services.
If an off-payroll worker is determined by the end client to be inside IR35, the fee payer will be responsible for ensuring that the correct amount of tax and national insurance is deducted from the off-payroll worker’s pay at source. The fee payer is the company that has the direct relationship with the contractor, so this could be the client or an agency of the client.
There are a number of factors to consider when determining whether your off-payroll workers are inside IR35 or outside IR35 – these include:
Mutuality of Obligation: Are you are obliged to provide additional work for your off-payroll workers outside of the original project? Are they obliged to accept the work?
Substitution: Can a substitute can be sent in the off-payroll worker’s place?
Supervision and Control: Can off-payroll workers work to their own time and actions or are they under your control on a daily basis?
Part and Parcel: Are off-payroll workers embedded in your workforce? For example, do they have line management responsibilities?
Since April 2021, your business as the end client has been liable for:
Making sure the correct determination is made and reasonable care is taken
Providing a written determination advising as to how the decision has been reached before the assignment commences
Responding to disputes over IR35 status determinations
This presents a significant risk to your business if you have not put in place processes to enable you to make the correct determinations, ensure working practices are aligned and that all tax and national insurance is collected.
If your business is also the fee payer, you will also be liable for ensuring the correct amount of tax and national insurance is deducted from your off-payroll workers.
“An HR-recruitment power house with a big edge in financial services. Fairness, Transparency and Openness are the top three tenets of this very people-focussed staffing firm. An excellent reputation too, dating back to 2004. ” – Contractor UK on The Curve as Group’s win for Best Contractor Recruitment Agency at The Contracting Awards
IR35: What Now?
If you are a medium or large business that meets two or more of the conditions set out above, and you utilise off-payroll workers, it’s time to make sure your processes are compliant.
The first thing you need to do is audit your current off-payroll workforce and determine on a case by case basis whether individual workers are inside IR35 or outside IR35.
Then you need to put compliant processes in place to ensure that your business:
Can make the correct determinations on a case by case basis
Has working practices that support your determinations
Can process deductions and payment correctly for off-payroll workers deemed to be inside IR35 or outside IR35 if you have a direct relationship
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