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IR35

To ensure IR35 compliance, you need a defined strategy in place. Dedicated experts, fully documented operational processes and cutting-edge technology can help you navigate this complex legislation.

Our supportive content

Not only are we committed to helping organisations through IR35, but also to sharing our expertise and knowledge to help better educate both organisations and individuals on the legislation. Below are just a few resources we have put together to do just that.

A guide to IR35 compliance

A comprehensive 'pocket' guide for businesses on how to properly prepare their organisation and HR function for the changes, to ensure they don’t face a skills gap in their workforce.

Read the guide

Gemma Macdonald talks IR35

Gemma Macdonald, COO at Capita Resourcing shares her expert opinion on what the IR35 reform 2020 means for organisation's contingent workforce strategy.

Watch the video

IR35 preparation checklist

A handy IR35 checklist you can download and print off to help you keep on track for a compliant workforce in preparation for the IR35 reform 2020.

Download

Some common questions

We get asked a lot about IR35 and how it will affect organisations and contractors. Here’s a handy list that answers some of those most frequently asked. If you’re still worried about IR35, get in touch.

Contact us

What is IR35?

The Intermediaries Legislation, known more commonly as IR35 refers to a piece of tax legislation which came into effect from April 2000. The legislation focuses on tax compliance of off-payroll working. If an engagement is in scope of IR35, Income Tax and Class 1 National Insurance contributions (NICs) need to be paid to HMRC on the deemed employment payment.

Who does it affect?

From 6th April 2020, IR35 rules applied to the public sector since 2017 will be extended to private sector organisations.

IR35 will only affect contract workers engaged by large or medium sized businesses, defined by HMRC as an organisation that has any two or more of the following:

  • £10.2m+ annual turnover
  • £5.1m+ on the balance sheet
  • 50+ employees

What does inside and outside IR35 mean?

If you are deemed ‘outside IR35’, this means that you are operating as a genuine business, and not as a ‘disguised employee’. Therefore, you have the option to pay yourself through a salary or dividends and remain responsible for all taxes still.

If you are deemed ‘inside IR35’, then this means you have been deemed as an employee of your end client for tax purposes, and therefore are subject to paying income tax and National Insurance Contributions (NICs).
 

What’s set to change in April 2020?

The government announced in the 2018 budget that from April 2020, reforms to the IR35 legislation would now extend to private sector organisations. The legislation was first amended back in 2017 to make public sector clients responsible for determining the IR35 status of their contract engagements, and that the fee-payer was required to make personal tax deductions and NIC from Personal Service Companies (PSCs) at source following an in scope decision. 

Although the final legislation for April 2020 is still yet to be released, we expect that it will mirror the private sector legislation we have already experienced.
 

I work via PAYE/ Umbrella, what do I need to know?

IR35 only affects those workers operating through PSCs, most often in the form of a Limited Company. An IR35 determination doesn’t affect the tax being paid by a PAYE worker (either via contractor payroll or a legitimate umbrella company) and therefore, engagements of this nature are not required to be assessed.
 

How do HMRC know that I have made tax and NIC payments?

If your client determines your engagement as in scope of IR35 then the legislation states that the fee-payer must not only deliver the income tax, employee and employer NIC directly to HMRC before making payment to the PSC, but they must also report on these payments on behalf of the PSC.
 

If I am deemed as in scope, will I receive employee benefits?

HMRC have made it clear that IR35 only refers to a tax status and not employment status - although you have been deemed as an employee for tax purposes, you still remain a contractor when it comes to your employment status and therefore are not entitled to employee benefits.
 

Does an in scope determination mean that HMRC will demand me to back-pay tax and NICs for my whole engagement? Should I leave now to avoid this?

HMRC already reserve the right to investigate any historical engagements, and the tax and NI paid against them, all the way back as far as 20 years in serious suspected cases of tax evasion. Terminating an engagement does not prevent HMRC from investigating the tax you paid whilst working under it. The reforms will not affect these timescales or rules.

HMRC have confirmed that “The reform is not retrospective – as it has in the public sector, HMRC will focus its efforts on ensuring businesses comply with the reform rather than focusing on historic cases… HMRC will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35 for the first time following the reform and businesses’ decisions about whether their workers are within the rules will not automatically trigger an enquiry into earlier years”.

Can my tenure at a client affect my IR35 determination?

No, tenure does not influence an IR35 determination - it is the nature of the engagement that can affect an IR35 status.
 

Can my accountant amend clauses in my contract to make my engagement out of scope?

The nature of the engagement and working practices contribute significantly to an IR35 determination, therefore amending clauses in your contract will not make an out of scope determination any more likely. It is also important to remember that most contracts will have compulsory clauses and terminology that cannot be changed, so always speak to your contract owner about the option of any changes first.
 

If I make sure that there is a substitution clause in my contract will it mean that I am out of scope of IR35?

No, any contractual clause must be proven to be legitimate and relevant – the end client will be asked whether they would accept a substitute by HMRC, and their decision would override a clause. HMRC will always hold proven practice in higher regard than agreements in principal.
 

If my end client determines that my engagement is in scope, must they compensate me by picking up the employer’s NIC/tax/other contributions?

Liability for income tax and national insurance contributions (NIC) that result from an in scope IR35 determination has existed since the introduction of the legislation in 2000; if an engagement is in scope of IR35 then income tax, employee’s NIC and employer’s NIC must be paid to HMRC. Prior to April 2020, the employer NIC portion would need to have been accounted for by the contractor’s personal service company (PSC) as part of the deemed payment calculation, along with the income tax and employee NIC at the end of the year.

From April 2020 the legislation will be updated to change the party responsible for making the IR35 determination, resulting in end clients being required to determine the IR35 status of all PSC engagements. The reformed legislation also states that, in the case of an in scope determination, the fee-payer should deliver the income tax, employee and employer NIC to HMRC directly before making payment to the PSC. Tax legislation has no impact on rates offered to contractors and each end client may have a different approach to rate negotiations.

If I transfer to a contract of service, or engage through a service company, will I be out of scope?

The type of contract that a PSC is engaged through will not determine the tax status. The nature of the engagement, working practices and contractual agreements all contribute to an IR35 determination, therefore changing your contracting method with the end client will not make an out of scope determination any more likely. 
 

I'm still worried about IR35, who can I speak to?

We would always recommend speaking to your accountant in the first instance as they are the experts when it comes to tax legislation and the nature of your business. Alternatively, please get in touch with us today and we can refer you to one of our Capita Resourcing IR35 experts. 
 

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