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TAXING MATTERS WHAT IS IR35? AND WHAT IS ITS IMPACT ON PRIVATE HIRE?


Normally a subject which is only really relevant to larger operators and their sub-contractors, this will impact itself in on those of you who are also micro businesses, limited companies or do work as independent operator work for larger companies (sometimes called associates).


I thought in all the chaos, the govern- ment will be unlikely to go through with this legislation, however it is now reality. So, for you big company guys here is what you need to prepare, for IR35 in April 2021.


AVOIDANCE LEGISLATION


The IR35 legislation was brought in as anti- avoidance legislation, to reap back tax. It was aimed at the situation where a worker is believed to be more like an employee, but they provide their service through a limited company thus avoid- ing the tax and NIC consequences of being employed.


Since its introduction in 2000, the onus was on the limited company contractor to look at their engagement to decide whether it would reflect employment, were it not for the limited company. IR35 is essentially a question of employ- ment status: if IR35 applies, the limited company must pay the tax and NIC that would have been due if the contractor’s engagement were reclassified as employment by HMRC.


This has already been rolled out into the public sector, where it is the public body’s responsibility to decide each contractor’s engagement, then the limit- ed company must be paid net of tax and NIC when caught by IR35.


CHAOS IN HIGH PLACES


It is no secret that the change to the legislation in the public sector created chaos. This resulted in many depart- ments issuing blanket ‘caught’ decisions


30


across their workforce, with swathes of contractors terminating their engage- ments and seeking work in the private sector or umbrella companies.


Because of this absolute chaos, of course the Government decided that the legislation was a success and decided to roll it out to the private sector, the changed IR35 legislation is rolled out this year.


IS IT YOU?


Small businesses are exempt: The new legislation will only apply to medium or large businesses, and public sector organisations, that engage limit- ed company contractors either directly or via an agency. Note that the legisla- tion replaces that which currently covers public sector engagements.


Just to be clear a small business has • Turnover of less £10.2 million • Balance sheet under £5.1 million • Less than 50 employees


Medium or large business (as per the definition within the Companies Act 2006) are not. Therefore:


• Over £10.2 million t/o • Balance sheet over £5.1 • Over 50 employees


Remember that for all subcontractors, any limited company contractor engaged will need to make their own decision as to whether their engage- ment is caught by IR35 under the existing rules.


YOUR OBLIGATIONS


If you are a medium or large business, you will have a legal obligation to decide as to whether each contractor’s engagement falls within IR35 using the traditional tests of employment status. This is the case for each and every con- tractor - no blanket decisions.


You have an obligation to use ‘reason- able care’ when making the decision, and to issue a ‘Status Determination Statement’ (“SDS”) confirming your decision. If you engage contractors (drivers) directly, this SDS must be issued to the driver.


So, who is liable for the tax and NIC? This is a little tricky, as there are provi- sions for the liability to move up and down the contractual chain depending on the parties involved and their behaviour.


Simplest of all is where the operator engages the driver directly, where the driver is responsible for the tax and NIC. Where there are other parties in the chain between the client and worker’s company, it changes based on the circumstances, (you kind of knew I was going to say this) but I believe it’s best to engage a specialist professional consultant. The point is, there are circumstances in which the operator could be liable for the tax and NIC:


AND FINALLY


If you are an operator or an engager of sub-contractors, you need to confirm whether the legislation applies to your operation and identify where workers’ services are provided via intermediaries.


A warning. During the consultation process, HMRC has made it clear that it is aware of avoidance strategies and will not be fooled by contrived arrangements intended to circumvent the new rules. Such arrangements should not be entered into in haste, and without review by a suitably expert third party.


Thank you to Rebecca Walker of HQ35 for her substantial input in this article


Gary Jacobs Director eaziserv.co.uk


FEBRUARY 2021


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