IR35 - Changes to tax rules

HMRC guidance is on their website at https://www.gov.uk/guidance/april-2020-changes-to-off-payroll-working-for-clients

The HMRC CEST tool is online at https://www.gov.uk/guidance/check-employment-status-for-tax

Will my organisation be affected by the changes?

It will affect you and your organisation if

• You are a private sector organisation

• You have any “off payroll” workers i.e. you have contractors or freelance workers supplied through an intermediary, PSC or their own limited company

• You expect these “off payroll” workers to be providing services to your organisation beyond April 2021

• You have a complex supply chain that may use “off payroll” workers

• You have no evidence of status assessments for tax

When are the changes taking effect?

From the new tax year, commencing 6th April 2021. The change was originally scheduled to roll out to the private sector in April 2020 but was delayed for a year in the light of the Covid-19 pandemic. Do bear in mind, though, that Easter falls at the beginning of April 2021 so, in effect, you have until the end of March to be ready.

Some good news is that none of the changes will be backdated by HMRC auditing organisations to before April 2021.

can you explain some of the terminology used around ir35?

IR35 = Inland Revenue clause 35 = long standing tax regulations recently updated with the change being rolled out to the private sector from April 2021

Off payroll worker = anyone providing work in your organisation but is not on the PAYE payroll. This can include freelancers, contractors, locums, consultants and similar. (For ease, I will use “contractor” through the remainder of FAQ’s below.)

PSC = Personal Services Company = any company structure used to pay an individual not directly on your payroll (can include limited company, umbrella body and other structures)

CEST = Check Employment Status for Tax = online HMRC tool for assessing if a contractor’s work falls within IR35

SDS = Status Determination Statement = document to confirm the IR35 status of an off payroll worker assignment and the reasons for that decision

Inside / Outside IR35 = tax status where Inside IR35 is employed for tax purposes and Outside IR35 is contractor / self employed for tax purposes

what do I need to know?

Broadly, the existing tax rules governing the tax treatment of pay for contractors are being tightened up for anyone in the private sector. The responsibility for deciding if a worker is off payroll / legitimately outside IR35 will move away from the contractor to the end user.

So, you, as end user, will be responsible for determining status for tax for all contractors that you pay directly or that are paid by you through an umbrella body or agency.

Plus, you will have the liability for tax and NI payments in those deemed to be inside IR35. And that liability may extend to contractors in your supply chain.

what are the risks involved?

If you do not assess the tax status of your contractors, you may be liable for any tax underpayments plus penalties from HMRC.

If you choose to just do a blanket assessment of all your contractors, this would not show the reasonable care required and, again, you may be liable for tax and NI underpayments plus penalties from HMRC.

If you do have contractors who are assessed to be inside IR35, there may be additional costs in retaining their services but these can be substantial (think 50% increase!). So, if you don’t pay additional money, you risk losing valuable skills to your organisation as your contractors will, effectively, be taking a pay cut, so may choose to leave as a result. If you only offer work that you have assessed as inside IR35, you may struggle to source the required talent.

Also, if your contractors are assessed to be inside IR35, there is a chance they could also claim to have employment rights, a further cost to your organisation.

Finally, there is always the risk of reputational damage if it goes wrong or if you fail to communicate appropriately with your contractors.

what do I need to do?

A basic action plan would need to cover the following:

1. identify your off payroll workers / contractors and critical priorities

2. carry out an individual tax status assessment for each contractor

3. for those identified as inside IR35, make appropriate changes to payroll or, perhaps, offer employment

4. issue a Status Determination Statements for all your contractors

5. update your resourcing and procurement processes for all new contractors

6. maintain communication with contractors and line managers

You also need to identify resources (internal and/or external) to deliver all of the above by the end of March.

who else might need to be involved?

Who needs to be involved will depend on the approach taken by your organisation. I would recommend one senior person who takes overall responsibility and ensures consistency plus, perhaps, a steering group from relevant functions such as HR, payroll, finance, procurement and internal communications. And, if you do not have the full range of knowledge, skills or resources within your organisation, you look to an external supplier such as CG Pro-Active HR to assist.

what if I have off payroll workers in my organisation who are supplied by an agency or other sub-contracting arrangement?

You, as the end user organisation, will be deemed to be liable for the status assessment and any underpaid tax and NI, unless you can show you have taken all reasonable steps. So, you need to start a conversation with the agency or intermediary as soon as possible to confirm who is carrying out status assessments and ensuring all parties are involved and retain appropriate evidence of compliance.

what do you offer at cg pro-active hr?

I offer a project management service for your organisation, to cover the full action plan to be ready for IR35. This can include as much or as little as you need. It could just be a review and advice for you to then manage in house. Or, a full service to include:

• identification of off payroll workers / contractors

• calculation of financial impact of options

• business case for senior management

• consultation and communication with contractors

• completion of tax status assessments

• all relevant documentation

• ongoing process guides

• coaching line managers

• training for relevant HR/Resourcing employees for future assessments

is there anything you do not include?

Whilst I have extensive HR and payroll knowledge, I am not a qualified tax accountant or tax specialist so, for very complex cases, I may recommend you obtain an alternative expert opinion for a status assessment. But I can still deliver the overall project for your organisation and obtaining an external assessment for some of your contractors will not affect my attention to detail for every other aspect of the project.

how much do you charge?

Your initial consultation will be FREE of charge to determine the extent of work needed. This will be used to provide a quote specific to your requirements, depending on factors such as number of contractors and amount of in house resource available to support the project.

How do I get in touch with you?

You can email directly at info@cgproactivehr.co.uk or use the Contact form here.

DO YOU OFFER ANY IR35 SUPPORT FOR INDEPENDENT CONSULTANTS?

Yes, I have a webcast and FAQ’s available for independent Consultants. Contact me on the email address above for more information.