IR35 & Off-Payroll rules: Your questions answered

With the IR35 rule changes for the private sector just around the corner, it is critical that you are prepared. Failing to comply could put your business at risk of a HMRC investigation or result in penalties further down the line. To make things clearer, our tax partner, Nolan Gooch, has answered the Internet’s most searched for IR35 questions.

How does IR35 work?

The off payroll working rules, also known as IR35, try to ensure that individuals working like employees but through intermediaries pay the same amount of tax as those individuals who are direct employees.. The intermediary is usually the individual’s own Limited company known as personal service company but can also be a partnership.

What are the IR35 changes?

After being delayed due to the pandemic, the new IR35 rules for the private sector will come into effect on the 6^th April 2021.

The major change is that the responsibility for deciding employment status switches from the worker to the work provider. The work provider must review and determine the treatment of each engagement and notify the worker of their conclusion. This means the work provider may face penalties if their decision is found to be incorrect.

If a worker does fall within IR35 it will be down to the work provider or agency to deduct PAYE from the worker’s fees.

The purpose of these changes is to help the Government combat tax avoidance and make compliance easier. By shifting the responsibility to the end client, it is expected that the awareness and capacity to carry out reviews will increase.

Who is liable?

All medium and large companies within the private sector are now liable to check the IR35 status of their work engagements. Within the public sector all organisations are responsible for these determinations.

Where the work provider is a small businesses, the responsibility remains with the worker.

To be classified as a small company you must meet two or more of the following criteria:

• Annual turnover is no more than £10.2 million.
• Balance sheet total is no more than £5.1 million.
• No more than 50 employees.

Will IR35 be delayed again?

It is highly unlikely that IR35 changes will be delayed again. Businesses have now had since the original 2018 announcement to prepare, so need to be taking the 6^th April deadline seriously.

When does IR35 apply and can it be backdated?

IR35 applies to engagements from the 6^th April 2021.  HMRC have said that they will not go back to earlier years where a work provider concludes that an engagement falls within IR35.

How to prepare for IR35?

How to prepare for the changes depends on your circumstance: Liable work provider:

• Use the government’s Check Employment Status for Tax (CEST) tool, which will help you review the tax status of your work engagements. The government have insisted that they will stand by the outcome of CEST tool reviews as long as questions are answered fully and fairly.
• Send a Status Declaration Statement to the worker and if relevant their agency.
• Devise a process for dealing with status decision appeals from workers.

Worker:

• You should receive a Status Declaration Statement from your client before the 6^th
• If you do not receive one, get in touch with them.
• You may need to renegotiate your rates if you are impacted by IR35.
• If necessary, you have 45 days to appeal against the status decision to the work provider.

Determining the tax status of your work engagements is complex, even with the help of the CEST tool. Whether you’re a work provider or worker, we can help with your IR35 review process and Status Declaration Statement appeals.