With effect from 6 April 2021, medium- or large-sized businesses will be responsible for determining the employment status of individuals who provide services to them through intermediary vehicles such as personal service companies. The fee payer will be responsible for calculating and paying the related tax and National Insurance contributions to HM Revenue & Customs.
Although calls for a further delay to implementation persist due to the COVID-19 pandemic, current indications are that the Government will press ahead with a 6 April 2021 start date.
Our London Tax Solicitors and Barristers have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.
What is IR35?
HMRC introduced IR35 in 1999. The intention was to tackle “disguised employment” and prevent individuals working in a manner which was effectively the same as employees, but under the guise of limited companies. Companies engage contractors through an intermediary, often a personal services company. These self-employed individuals do not have to pay national insurance and and benefit from lower income tax.
HMRC claim that currently only 1 in 10 contractors, who should be paying these taxes are doing so and that these changes will bring in an additional £3.1bn in additional tax revenue between 2020 and 2024.
Who is affected by IR35 upcoming rules?
• Contractors providing services to medium and large businesses;
• Fee-payers in the recruitment sector; and
• Medium and large businesses in private sector that are end user of the worker’s services.
Originally, the onus was on individuals to assess and then declare to HMRC that they fell under IR35. However, HMRC are now tightening the net on these self–employed workers by shifting that onus to businesses to determine the status of their contractors.
Changes to IR35 Legislation?
Changes are being implicated into IR35 Legislation due to contractors not paying the correct tax and National Insurance and incorrectly assessing their IR35 status. The non-compliance has reportedly costed HMRC millions therefore the rules are changing in hope to ensure compliance.
IR35 changes are being introduced in April 2021 to move the responsibility for assessing IR35 obligations from the contractor to the end user. The fee payer will be responsible for calculating and paying the related tax and National Insurance contributions to HM Revenue & Customs.
Private sector companies will have statutory obligation to assess the deemed employment status of contractors engage through an intermediary and if they are in fact employees, they will need to issue a determination to the contractor and subsequently add the individual to PAYE.
Do the IR35 rules affect my company?
Companies will not have to comply with the new IR35 legislation if they satisfy two or more of the following criteria:
(a) an annual turnover of not more than 10.2 million;
(b) balance sheet total of not more than 5.1 million; and
(c) number of employees of not more than 50.
How do contractors prepare for IR35?
Contractors should be communicating with their employers and reviewing their existing arrangements. If you are a contractor likely to be affected by IR35 or would like advice on your options, get in touch with our tax team now.
How do companies prepare for HMRC?
In order to prepare for these upcoming changes companies organisations should:
- The first step is to assess whether they would be considered either a medium or large organisation for the purposes of the rules;
- Assess the deemed employment status of contractors who supply their services via an intermediary such as their personal service company;
- HMRC has updated its ‘Check Employment Status’ (‘CEST’) tool, which is one way for businesses to make a determination about whether or not an individual operating through an intermediary falls within the scope of IR35;
- Ensure that systems are in place to comply with the requirement to produce a ‘status determination statement’;
- Introduce disputes resolution to deal with any disputes regarding status determination statements;
- Review and amend engagement, payslip, payroll processes; and review and amend labour supply contractual liabilities and indemnities to ensure compliance.
There may be changes that need to be made to contracts, both existing and future contracts. We can assist you with the review and advise you on the next steps in preparation for the implementation of the new legislation in April 2021.
How has Covid-19 impacted IR35?
Contractors have said that this brief reprieve has granted them temporary relief in times of great job uncertainty, particularly where contractors are often the first overhead to be cut from businesses as they handle the aftermath of the pandemic and its financial impact. This may drive many contractors to seek full employment within their companies to ensure job security moving forward.
What can we do for you?
Our expert tax litigation team can:
- assess the employment status of your current contractor workforce and produce a status determination statement for each contractor as to whether they fell under IR35
- review your contractual terms to ensure the business has all the protection required
- assist with drafting communications with contractors and their line managers
- assist with liaising with HMRC where necessary
Expert London Tax Investigation Lawyers
If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation.
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