As you’ll be no doubt be aware, the regulation of IR35 is changing.
At Sphere Digital Recruitment, we’ve worked alongside IR35 and HMRC specialists to take the burden of these changes away from you and to minimise disruption, helping you to maintain business as usual.
Below is a list of FAQs we’ve been asked which should provide all the information you need to know ahead of the upcoming changes.
What is IR35?
IR35 is the name given to tax legislation in the Income Tax (Earnings and Pensions) Act 2003 and was originally introduced in response to the growth of ‘disguised employment’ and to combat tax avoidance.
IR35 applies to contracts worked through an intermediary, such as a limited company or Personal Services Company (PSC).
Irrespective of the way in which they work, IR35 was introduced to ensure that contractors which work in the same way as employee pay broadly the same taxes as actual employees.
What’s set to change?
It’s important to understand that IR35 has not changed, but the way it is administered has.
As it stands currently, the onus is on contractors to establish whether their work is subject to IR35, however from April 2020, it will be the obligation of the end-client to check rather than the contractor.
Changes in April 2020 will be for contractors working in the private sector and will be consistent with the changes for contractors working in the public sector brought into effect in 2017.
When will the change take effect?
Subject to approval, the new IR35 rules will come into effect on April 6th, 2020.
Why has the IR35 legislation changed?
These changes have been introduced to ensure that contractors working via an intermediary are contributing fairly to the tax system by not 'avoiding' employment taxes or National Insurance Contributions (NICs).
Who determines IR35 status?
From April 6th, 2020, it is the responsibility of the end-client to assess the employment status of the contractor (insider or outside IR35).
The contractor’s status determination needs to be provided by the end-client to both the contractor and to Sphere Digital Recruitment.
The client has determined the contract is inside IR35, what happens next?
If it’s determined the contract is inside IR35, Sphere Digital Recruitment will help you work through one of our approved umbrella companies. PAYE deductions including income tax and NICs will be made from your agreed pay rate and this will affect your take-home pay.
The client has determined the contract is outside IR35, what happens next?
If it’s determined the contract is outside IR35, Sphere Digital Recruitment will pay your limited company the agreed rate without PAYE deductions.
How do clients make an IR35 determination?
Most end-clients will use the ‘Check Employment Status for Tax’ (CEST) tool designed by the HMRC, and there are a number of tools they can use.
Once checked, the end-client needs to inform the contractor why they have determined whether the assignment falls inside or outside IR35
What if I disagree with a client’s IR35 determination?
If you disagree with an IR35 determination, it is possible to appeal their decision. The end-client will have 45 days to respond and can either change their determination, providing the contractor with a new statement, or stand by their original determination and give an explanation.
There is no further appeal process if the end-client stands by their original decision.
Are there any exceptions to the IR35 rules?
The rules only apply to large and medium businesses and not those classed as a small business. In the case of a small business, they will not need to determine the status of the contractor in order to minimise administrative burdens.
During a 12-month period, a business is deemed to be a ‘small’ company if it meets 2 or more of the following criteria:
- Turnover – not more than £10.2 million
- Balance sheet total – not more than £5.1 million
- Number of employees – no more than 50
Are recruitment agencies affected by the IR35 changes?
Yes. Recruitment agencies that are responsible for the payments to contractors will carry the IR35 liability when the new rules are enforced. This has also been the case in the public sector since 2017.
I work via an umbrella company; will I be affected?
No. The changes to IR35 only apply to contractors working via a limited company and not to those working via an umbrella company.
If I’m deemed to be an ’employee’ for tax purposes, do I qualify for employment rights/benefits?
Unfortunately not. If your contract is deemed to be inside IR35, then you will be taxed as an employee, but will have none of the statutory employment rights associated with traditional workers. However, if you work through an umbrella company you will receive some employment rights, such as holiday pay.
What if I have multiple contracts with multiple end-clients?
IR35 applies to a contract, not a person. So, you may find that one of your contracts falls inside IR35 rules, whereas another may fall outside.
Is there any way to bypass the new rules?
You are unable to get around the IR35 reforms. We strongly advise contractors to avoid any type of ‘tax avoidance’ scheme, as you may well be forced to repay any unpaid tax, plus penalties in a future HMRC investigation.
How can Sphere help me as an end-client?
If you are a client, find out more about how Sphere Digital Recruitment can help you here
How can Sphere help me as a contractor?
If you are a contractor, find out more about how Sphere Digital Recruitment can help you here
To find out more information, please contact Sphere Digital Recruitment’s IR35 team or visit the government website.
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