IR35
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IR35

What is IR35?

  • Complex tax legislation introduced in 2000 and is now on its 5th iteration 
  • Designed to combat tax avoidance by PSC’s (those who would be otherwise classed as an employee)
  • The government are expanding IR35 from Public Sector (off-payroll workers legislation) into the Private Sector April 2020
  • Applies 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 2020?

  • 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
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