Off-payroll working legislation: Useful information for our clients
What is IR35?
IR35 first became law in April 2000. The UK government initiated this anti-tax avoidance legislation in a bid to make sure that individuals working in a temporary capacity via an intermediary such as a personal service company, who would have been an employee if they were providing their services directly to a client, pay broadly the same tax and National Insurance contributions as employees.
The legislation put the onus on the interim to decide whether or not IR35 applied to them by determining 3 key tests, the right of substitution, control and mutuality of obligation.
After various attempts from the government to address non-compliance, ‘Off-payroll working’ legislation became law in the public sector in April 2017. It meant that all organisations that fell under the Freedom of Information Act became responsible for determining the IR35 status of the role thus removing the right of the interim to self-determine.
This predominantly affected office holders within the NHS and statutory roles within Local Government.
If the off-payroll working rules apply to a role, the individual carrying out that role is deemed an ‘employee for tax purposes’ and the agency providing them, is responsible for accounting for, and paying income tax and national insurance under PAYE to HMRC, on behalf of the worker.
From April 2021, the off-payroll working rules will continue to apply to all public sector authorities and include medium and large-sized private and third sector companies, shifting responsibility for the employment status determination of a role from intermediary to end client. We advise you to read the guidance at https://www.gov.uk/guidance/april-2020-changes-to-off-payroll-working-for-clients.
How do I know if IR35 affects my business?
To qualify as a medium or large sized company, you must meet 2 or more of the following conditions for 2 consecutive financial years:
- Annual turnover of more than £10.2 million*
- A balance sheet total of more than £5.1 million
- More than 50 employees
*If the client is a charity, turnover excludes any charitable donations received.
If your company is classified as small under the Companies Act 2006, you must confirm this to us in writing within 45 days of us asking. HMRC provide a template you can use when responding.
If this is the case, the responsibility for determining whether the off-payroll working rules apply remains with the intermediary.
What tools can I use to determine whether the rules apply?
At placement stage, the end client must produce a Status Determination Statement ‘SDS‘, and show their rationale.
To do this, you could use HMRC’s CEST tool to determine whether off-payroll working rules apply.
- The outcome of this is a valid SDS, and the answers show rationale.
- The tool asks a series of questions in order to reach the final determination.
- It is anonymous and will not store any information entered, or the result given. You will be able to print the result for your own records.
- It doesn’t cover mutuality of obligation, one of the key IR35 status tests, and it relies heavily on the right of substitution.
- It has a limited question set, which doesn’t allow for finer details.
Another option could be to use Qdos Contractor. Please contact your Odgers Interim Consultant if you’d like to use either of the below tools through our portal.
- 12 question assessment – The questions are sent to the hiring manager to complete.
- This gives a good indication of employment status, but it’s important to note this alone is not conclusive for the entire engagement and does not produce the required SDS.
- No cost.
- 42 question role review – The questions are sent to the interim, Qdos review their answers, provide a status determination, and send to the end client for approval.
- The outcome of this is a valid SDS, which is sent out to the client, the interim and Odgers Interim.
- The Qdos Status Review costs £89 + VAT for an initial assessment and £70 + VAT for a 6-monthly reassessment.
- Tax Liability Cover is automatically applied to each outside of the legislation determination that Qdos make and lasts for 72 months after the determination, providing that a reassessment is done every 6 months, when applicable.
- The policy covers both defence and liabilities in the event of an HMRC enquiry.
- The policy holder would be Odgers, with coverage extending to you, the end client.
Please note there are other organisations offering IR35 assessment tools, with no financial benefit to Odgers Interim if you select Qdos.
What action do I need to take?
We will issue you with a letter to sign, confirming whether the off-payroll working rules apply, please send this back to us, along with your SDS for the role.