What is IR35?
Complex tax legislation introduced in 2000 and is now on its 5th iteration. It has been designed to combat tax avoidance by PSC’s (those who would be otherwise classed as an employee). In April 2021, the government are expanding IR35 from Public Sector (off-payroll workers legislation) into the Private Sector. This will apply to workers who operate via PSC (NOT sole traders, umbrellas or PAYE).
Why is this being expanded?
- Over the last 30 years our economy and employment have changed massively
- GIG economy, avenues of tax non-compliance are growing
- HMRC have a view that tax is not being paid correctly with a c.£1.2bn shortfall p.a.
- No side-stepping routes left for not paying taxes and NIC
What’s changing on 6th April 2021?
- Clients, by law, must determine the IR35 status for each worker
- If the assignments falls within IR35 then the 'Fee Payer' (last point of pay usually an agency or an umbrella) has to deduct PAYE, NIC & ENI taxes. Only applies to day rate excluding VAT
- If the End Hirer does not make a determination, does not pass it on to the agency or makes an incorrect one, then they will be liable for unpaid taxes & NI
- Fee Payer (agency) will be liable for unpaid tax should they fail to action the determination made by the End Hirer
- End Hirer has to implement a ‘Disagreement Process’ should a worker not agree with a determination.
What criteria determine IR35 status?
- Right to Substitution – need to have clear process / permissions / payment set out in contract. PSC has to pay the substitute worker
- Supervision, Direction & Control (SDC)
- Financial Risk – defect management / early delivery bonus
- 'Part & Parcel' of the Organisation – length and frequency
- Mutuality of Obligation (MOO) – typically exists where you have employment relationship