What is IR35? Does IR35 affect me?
by our HR Consultant Nicki Mawby
IR35 I hear you say, isn’t that something to do with tax? I think that’s just for the public sector, it doesn’t affect my business.
These are all comments I have heard over the few months and something I wish I could confirm as true.
Unfortunately, IR35 is something that all private sector organisations need to be aware of, especially those that frequently deal with self-employed contractors or contractor businesses.
So, what is IR35?
Expected to be brought into force in April 2020, IR35 is the enforcement of tax due upon self-employed contractors who in the eyes of HMRC are actual employees/workers.
The decision was made to postpone the enforcement from April 2020 to April 2021, due to the impact of the pandemic. Time will tell whether there will be a further postponement, however whilst any delay will be seen as a positive by business owners, it will only delay the inevitable. IR35, will be brought into force sooner or later, so it is important you are prepared and have the necessary measures in place.
The employment status saga has been rumbling now for several years, with high profile cases such as Pimlico plumbers and Uber regularly hitting our news feeds.
IR35 is an extension of this saga, prioritised by HMRC who believe that hundreds of millions of pounds in tax are being unpaid by employees being masked as self-employed contractors.
Industries such as transport, beauty and construction will be particularly focused upon, knowing that these industries heavily rely on consultant/self-employed individuals.
So how do you establish if your contractors are genuine contractors or indeed employees, who you will be liable for making tax payments for?
It’s all based on the level of control within the working relationship along with other factors detailed further along within this article.
There is a handy government questionnaire available click here online which provides guidance and is definitely worth a look. However, the things to consider include whether your contractor:
- works for other businesses or only contract into you
- advertise their services elsewhere in order to gain new business
- wears your uniform
- is provided with tools/equipment to complete their job
- works to hours/shifts dictated by yourself
- submits invoices on their terms
- has liability and insurances for their work
- can provide a substitute
Please note, this is just a starter and is not inclusive, however if you read the above and the level of control is heavy on your part, you are likely to be engaging employees/workers and not contractors.
An example of control is below, which I personally experienced during an IR35 assessment.
As some of you may know, alongside the consultancy which provides HR, Recruitment and Training services, I also teach HR for a local college and university.
Whilst teaching for the college and university, the level of control is very much weighted to them.
- I teach at a certain time on set days, I cover modules dictated to me by the course prospectus set by the business and I cannot wear my business branded clothing.
- I am expected to achieve a calibre of teaching, exceed a certain pass rate and can be performance managed if that isn’t achieved.
- I hold no insurances for this role and all liabilities are held by the college and university.
- Finally, I am not responsible for learner numbers and have no involvement for the marketing or sales of courses.
Within this role I am without doubt an employee.
However, on the flip of this situation I also teach HR (the exact same courses) for an external training provider in Cambridgeshire.
Now you could think as I am teaching the same qualifications, I must be an employee for this business too??
But actually, within this role the control is very much weighted towards me.
- I am responsible for learner numbers; I create and remain responsible for all training materials and teaching content is set by me to the course I have chosen.
- I can dictate when and how I teach and can provide a substitute if I can’t run a lesson for whatever reason.
- I hold the necessary qualifications and insurances to enable me to teach and am responsible for maintaining these.
- I can wear branded clothing should I choose and the only option available to the company should I deliver poor results is to disengage the contract (not disciplinary action)
You see, on the surface I am teaching the same course. However, underneath this, the control and elements of contract are very different.
I am an employee for one and self-employed for the other. Therefore, where I am an employee, the employer is responsible for making contributions such as tax and NI and I have entitlements including holiday and statutory sick pay. The other, I am responsible for paying the required taxes based on invoice amounts.
Once IR35 is upon us, should you unfortunately get it wrong and be found to engaging employees disguised as contractors, you are likely to have a full audit and investigation. An outcome of this will potentially be you are held liable for backdated taxes due along with a hefty fine.
A fear of the unknown and uncertainty can bring about a reluctance, ignoring the issue until it presents itself as a problem. However long term this will bring about further stress and potential financial detriment.
Being proactive and taking steps now to understand your risk, will allow you to make any changes required at a pace that avoids impact on your business operations and profits.
We are here to help.
Contact us to arrange a 1 hour, IR35 call ? at £75.00 +vat and we can discuss your business and advise on initial risk. Should you need further support and engage us to support this, we will discount the cost of your initial call.
