Understanding changes to IR35
Controversial changes to HM Revenue & Custom’s anti-tax avoidance legislation IR35 are examined in full in a webinar produced jointly by HWB accountants and legal firm Glaisyers.
Presenting the webinar is employment law specialist Sarah Scholfield, an Associate at Glaisyers, which, like HWB is part of the ETL international network of professional service firms.
HWB joined ETL Global, which has a 9,000-strong team of experienced professionals supporting over 200,000 clients in over 60 countries, in 2019 and often works in partnership with other ETL firms.
The 50-minute webinar discusses the role of IR35, how it operates in the private sector, the changes which affect off-payroll working rules and what businesses must do to embrace these changes.
Available on HWB’s YouTube channel, the webinar is a comprehensive one-stop advice shop for all individuals and companies included in IR35 regulations.
IR35 is part of the 2003 Employment Act and regulates workers who provide their services through an intermediary, or personal service company, meaning there is no direct contract between the individual contractor and client.
Sarah says: “HMRC has long been concerned about individuals using this type of corporate structure to deliberately avoid paying the increasing employment taxes.
“The reality of the situation is if you remove the intermediary from this process and you look simply at the relationship between the contractor and the client that contract is probably deemed employment.”
HMRC estimates only 10% of personal service companies correctly apply the IR35 rule and the Treasury says this amounts to a cost of £1.2 billion a year, indicating why the changes were made from 6 April.
The three-stage employment status test for IR35 includes constructing a hypothetical contract between the contractor and the end-use client, ignoring the intermediary, to see whether IR35 applies or whether the contractor is genuinely a self-employed individual.
Before 6 April, the responsibility for determining whether IR35 applied in the private sector fell on the shoulders of the intermediaries, who were then required to implement PAYE and NICs – and served with a Regulation 80 Notice if they got it wrong.
The changes mean that responsibility now falls to the client, the highest person in the contractual chain, generally one step above the intermediary.
However, this shift of responsibility only applies to medium and large-sized businesses which satisfy two of these three criteria: turnover of more than £10.2m; balance sheet of more than £5.1m; average of more than 50 employees. In other cases the current IR35 regulations remain in place.
Sarah says: “Clients now have to undertake an assessment of each individual worker to determine their status, produce a Status Determination Statement (SDS) and give it to the worker and any other party in the contracting chain.
“Businesses should also bear in mind that there is a very clear expectation from HMRC that clients should look at contractors on an individual basis and not simply adopt a blanket approach and decide that everybody falls within the rules.”
Sarah, who says clients should by now have made specific arrangements to deal with IR35, outlines what actions are necessary.
She adds that defaulters face potential HMRC fines, penalties and interest charges.