What is IR35?
Get the facts
Does your business engage with contract workers who provide their services via an intermediary, such as a personal service company (PSC)? If so, you need to know about the implications of IR35.
Responsibility for determining whether a worker is inside or outside IR35 legislation has shifted from the worker’s intermediary (Personal Service Company) to the end client (or engager).
The rules do not change the consequence of IR35; workers deemed inside IR35 must pay the same tax and national insurance contributions as direct employees.
If HMRC investigates a worker, they will look not just at the contract, but at the actual working relationship between the worker and end client.
If HMRC deems a worker to be non-compliant with IR35 rules, they will look to recover any tax and national insurance contributions owed, plus interest and potentially any penalties due, from the client or the supply chain.
If the end client pays contractors directly (acting as both end client and fee payer), they will take on the full financial risk in the event of non-compliance.
This "double risk" can be avoided by paying contractors via an agency such as Millbank, who would then mitigate this financial risk in the event of a dispute or non-compliance.
When a worker is outside IR35, they are deemed to be genuinely in business of their own account and are therefore not affected by IR35 legislation.
When a worker is inside IR35, they are deemed as a ‘disguised employee’ (HMRC Term) and IR35 dictates they must pay the same tax and national insurance contributions as employees.
HMRC has developed an online tool called CEST (Check Employment Status for Tax) designed to assess tax status, however this tool has proven controversial and there are more prudent determination products in the marketplace to provide a determination.
Millbank are working with their clients to ensure that a Reasonable Care Policy is established and that contractors are informed of this process by the End Client and treated fairly. This will be for existing contractors and future contractors who are engaged.
IR35 status can be determined through a series of tests as outlined below (click each title to learn more):
Outside IR35: The worker can provide a suitably qualified and skilled substitute to do the work.
Inside IR35: The worker must carry out the work personally.
Outside IR35: The worker is not supervised, directed or controlled by the client in how they carry out the work.
Inside IR35: The client directs and controls the worker on how to do the work and supervises the work.
Outside IR35: There is no obligation for the engager to offer work, or for the worker to accept work offered.
Inside IR35: The engager is obligated to provide work, and the worker is obligated to accept it.
Outside IR35: The worker is easily identifiable as independent from the engager and their employees.
Inside IR35: The worker is indistinguishable from the engager’s employees.
Outside IR35: The worker has no benefits such as holiday, sick or maternity pay, or access to amenities such as free meals or staff events.
Inside IR35: The worker has access to holiday, sick or maternity pay, or to amenities such as free meals and staff events.
Outside IR35: The worker is risking their own money, e.g. by buying their own equipment, paying for training, or reducing their rate in the case of late or unsatisfactory work, and provide for adequate business insurances to manage commercial risks.
Inside IR35: The engager provides financial support for assets needed to complete the job.
Outside IR35: The work will end after a set period of time or is project based.
Inside IR35: The work is ongoing with no set end date.
Outside IR35: Both parties are aware that the arrangement is business-to-business.
Inside IR35: One or both parties are unaware that the arrangement is business-to-business or sees the arrangement as employer-employee.
Outside IR35: The contract has a clause wherein either party can give notice to bring the contract to an end, either immediately or at short notice.
Inside IR35: The engager has a right to “dismiss” the worker. A dismissal carries employer/employee connotations.
If a contractor provides services to a client in the private sector classed as a small company, the contractor will remain responsible for deciding the contractor's IR35 status. A company is classed as small if it meets 2 or more of the following criteria:
Millbank have Introduced a compliant automated solution portal, with no direct costs. We have partnered with a market expert company and we can provide for bespoke determination via our own online portal tool.
The determination portal has been designed with tax specialists to provide for a robust assessment tool for IR35 .
Millbank have reviewed numerous methods and service providers to assist their clients and contractors in implementing a reasonable care process, which is robust to deliver full legislative compliance but is automated and efficient in providing IR35 determinations. Millbank with their partner company is now promoting what they believe is a prudent process solution for clients to facilitate the new IR35 legislation changes in April. Millbank can provide for a full-service solution which includes for: -
If you are a medium or large business engaging with PSCs directly, then you will almost definitely require a partner to help deal with the changed legislation to avoid taking on the full financial risk in the event of non-compliance, as otherwise you will effectively be regarded by HMRC as both the “Fee Payer” and the “End Client”.
At Millbank we have 33 years of experience delivering resource solutions to a wide range of industry sectors and world class clients.
Millbank and their partners will assist in establishing a Reasonable Care Policy for the engagement of PSC contractors, as suitable processes will then follow to determine whether a PSC falls inside or outside IR35.
If you are engaging with PSCs via a supply chain, ensure that you secure your supply chain and they are able to offer PAYE Temporary Worker Contracts. This is something Millbank provides and any other reputable employment business should offer.
We are here to offer support and advice to any businesses who engage with off-payroll workers and PSCs. Contact our team now via the form below, or call 01928 751000 or email firstname.lastname@example.org and we will work with you to mitigate the risks in partnership.
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