How should a Contractor challenge an IR35 in 2021 Determination?
What’s Happening with IR35 in 2021?
The UK Government’s delayed IR35 rule changes are almost upon us. The changes to the off-payroll rules were due to come into effect on 6 April 2020. This has now been delayed until April 2021 because of the spread of the coronavirus (COVID-19) pandemic. The delay is to help businesses and individuals deal with the economic impact of COVID-19.
The delay to the introduction of the changes is not a cancellation.
The off payroll working rules.
The off payroll working rules can apply if a worker (sometimes known as a contractor) provides their services through their own limited company or another type of intermediary to the client.
An intermediary will usually be the worker’s own personal service company, but could also be any of the following:
- a partnership
- a personal service company.
- an individual
The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees. These rules are sometimes known as IR35.
The client is the organisation who is or will be receiving the services of a contractor. They may also be known as the engager, hirer, or end client. The client will be responsible for determining if the off payroll working rules apply.
You will also need to report to HMRC at least every three months using their online service and template.
Who the rules apply to
You may be affected by these rules if you are:
- a worker who provides their services through their intermediary
- a client who receives services from a worker through their intermediary
- an agency providing workers’ services through their intermediary.
If the rules apply, tax and National Insurance contributions must be deducted from fees and paid to HMRC.
Employment status for tax purposes is whether a worker is employed or self-employed. It is used to determine the taxes the worker and client need to pay.
Agencies need to be aware of any impending changes and make sure that they take a strategic decision as to whether they are happy to accept the added risk and burden of compliance.
As an agency, you will either be an introducer or an intermediary.
An introducer simply provides an introduction between the worker and the company and that is largely where their involvement ends. If this is you, then IR35 will not apply.
Intermediaries provide a worker for the company end-user. Payment is made by the company to the intermediary and then on to the worker. In this case, you need to be very careful about the new agency rules.
There are four main consequences for an intermediary:
- You will have to operate PAYE for workers inside IR35.
- You will have to carry out determinations and have an appeal’s process in place.
- Finding contractors may become more difficult.
- Some clients may refuse to use anyone unless they are on a Fixed Term Contract (FTC)
The big problem for recruiters under the legislation is that they will not only be responsible for making what can be a complex decision, but they will also become liable for tax and NICs that have not been paid where this decision proves to be incorrect.
It is distinctly possible that some agencies may simply refuse to take on roles where the client specifies that they want to engage a limited company contractor.
It is also highly likely that with COVID and the implications of Brexit, many of your clients have not even thought about IR35 yet, so you may need to guide and educate them.
If you are an agency that works with clients that use contractors, then you need to keep an eye on the legislation and make sure you are ready. This will mean systems, training, and most importantly professional advice.
When the rules apply
The rules apply if a worker provides their services to a client through an intermediary but would be classed as an employee if they were contracted directly.
A contract for the purpose of the off payroll working rules is a written, verbal or implied agreement between parties.
The off-payroll working rules apply on a contract-by-contract basis. A worker may have some contracts which fall within the off payroll working rules and some which do not.
Before 6 April 2021
If you are a worker and your client is in the public sector, it is their responsibility to decide your employment status. You should be told of their decision.
If you are a worker and your client is in the private sector, it is your intermediary’s responsibility to decide your own employment status for each contract. The private sector includes third sector organisations, such as some charities.
From 6 April 2021
From 6 April 2021 the way the rules are applied will change.
All public sector authorities and medium and large-sized private sector clients will be responsible for deciding if the rules apply.
If a worker provides services to a small client in the private sector, the worker’s intermediary will remain responsible for deciding the worker’s employment status and if the rules apply.
How Can FZCO Accountants Help You?
We can help you prepare for all aspects of the IR35 changes, including:
- Working with your team to identify the key processes and the decisions you will need to take to effectively manage the change, quickly and efficiently.
- Using automation techniques prepared to identify PSCs with whom the business engages.
- Managing the employment status assessment process and using our workflow solution to streamline communications and maintain an audit trail of discussions.
- Drafting communications to collective/specific stakeholders, including impacted PSCs.
- Considering contractual amendments with both PSCs and agencies you use to support the transition to the new rules.
- Designing new processes and controls to manage the operational impact of the changes, e.g., payroll.
- Support with the Status Disagreement Process.
- Supporting end-to-end project management on all the above.
