IR35 and Businesses
The rules regarding IR35 and off payroll working are changing on 6 April 2021. Previously the intermediary Personal Service Company (“PSC”) was responsible for determining your contractors tax status under IR35.
From 6 April 2021 the responsibility for determining the IR35 status will shift to you as the end user client. These changes only apply if you are a medium to large business, defined as those with an annual turnover greater than £10.2 million, a balance sheet in excess of £5.1 million and more than 50 employees. Small businesses that do not meet all the criteria will not be responsible for IR35 and the PSC will continue to self-assess.
Determining your contractors IR35 status is often to referred to as inside or outside of IR35. Contractors found to be inside IR35 are taxed as a deemed employee, those outside are paid gross. Your business must take reasonable care when carrying out status determinations. HMRC have an online tool, check employment status for tax (“CEST”), that can help with the determination. Businesses do not have to use CEST, it is not mandatory, with the best approach to use CEST and have the determined status double checked by an employment specialist. It is imperative that you do not make blanket IR35 determinations, they should be carried out for each contractor on a case by case basis.
Status determination statement (“SDS”)
SDS’s must be distributed to all those in the supply chain. Now is the time to review all the contracts in that chain to ensure IR35 compliance. SDS’s must give detailed explanations of the factors that led to the status decision. Communicate with your contractors and involve them in that process.
Good record keeping is essential to effectively manage the IR35 reforms and successfully deal with any enquiries from HMRC. There should be an audit trail with regular documented reviews of the contractor’s status and reviews carried out whenever the contract with the contractor changes.
Challenges to status
You should have a procedure in place to deal with any challenges. You will have 45 days to respond to a challenge with no right of appeal. Ultimately contractors are free to contract with another client if they are not happy with the status you have given them.
If you have any queries regarding this communication or need employment advice please do contact a member of the Employment Team on firstname.lastname@example.org or by telephone on 0118 951 6621.