Do you engage contractors in the security, international development or extractives industries in the UK or send them abroad? Does your company have a connection to the UK? Are you a contractor based in the UK? Then our 4-week blog series is a must-read around this rapidly approaching enforcement of the legislation that will impact you and your business.
Our 4-week blog series will cover:
1. What is IR35 and its Impacts?
2. How to mitigate IR35?
3. How to assess roles for IR35?
4. What are my IR35 Options?
This week, in “What is IR35?” we cover:
- What is IR35?
- Why should I be concerned?
- What are the impacts of IR35?
What is IR35?
IR35 legislation, which has been in place since the early 2000s, was designed to assess whether a contractor is a genuine contractor rather than a ‘disguised’ employee, for the purposes of paying income taxes and national insurance contributions. From April 6th, 2021, medium and large size companies in the UK will now be responsible for assessing the employment status of individuals who work for them through their own limited company, for tax purposes. It was due on the 6th of April 2020 but was delayed due to the coronavirus pandemic.
Until April 6th, 2021, a contractor determines if they are “inside” or “outside” of IR35. From the 6th, the “end-user” (client) must determine the role and must show reasonable care in that process. If the role has been “deemed inside”, then the contractor must be treated as an “employee” in terms of tax. HMRC has launched a widely criticised online tool, to assess roles, the Check Employment Status for Tax (CEST) tool. 3rd party tools are available, but CEST remains the only tool HMRC will recognise. There are 4 key assessment areas: Mutuality of Obligation, Substitution, Control and Part & Parcel.
Why should I be concerned?
If your company is registered in the UK and you are paying taxes in the UK, then the legislation will impact you and how you are engaged from April 6th, 2021. If you engage large number of contractors, then your wage will bill could increase dramatically, and there are fines for non- compliance. HMRC has stated it will not look retrospectively at back taxes, but it reserves the right to investigate, for up to 6 years, if it believes fraud has occurred.
What are the Impacts of IR35?
From an end client perspective, there are four main risk areas:
- Reputational damage (from failure to comply)
- Financial impacts from non-compliance – higher wages and fines
- Operational impacts – the need to ensure service continuity
- Uncertainty – the unknown for your Limited Contractor population From a contractor perspective:
- Loss of earnings for being “deemed inside”
- Potential for HMRC to investigate for back taxes, up to 6 years in arrears (where fraud may have occurred) Where can I find out more?
Remember to come back for next weeks blog on “How to Mitigate IR35”. We will also be holding a Q&A session on IR35, which you can sign up to here. Feel free to leave any questions in the comments below.
Contact us at Proelium Law for further information on [email protected], visit our website at https://proeliumlaw.com/ or watch out for the next blog on 14th September 2020, on “How to Mitigate IR35″.
HiverPath is a boutique consultancy focused on the Staffing Industry. With over 20 years’ experience in the industry, covering the UK, Europe and Global markets, HiverPath can assist in multiple areas:
- Regulatory Compliance
- Workforce Strategy and Planning
- Technology
- Implementation and Project Management
- Change Management
- Market Analysis
- Cost Efficiencies and Business Analysis
- Diversity and Inclusion
