IR35 – What is it all about?
The changes to the Off-Payroll rules were due to come into effect on 6 April 2020. This was delayed until April 2021 because of the spread of the coronavirus (COVID-19) pandemic. The delay was to help businesses and individuals deal with the economic impact of COVID-19.
The time has now come to face up to the fact IR35 has arrived in the Private Sector and many UK contractors or contractors who choose to work in the UK may be affected by the new tax rules.
At Offshore Marine People and Academy (OMPA) we have been doing all we can to ensure we have all tools in place to be able to help and support our Clients and Contractors through the IR35 maze.
Simply put, the new tax legislation is designed to combat tax avoidance by workers supplying their services to clients via an intermediary, such as a Personal Service Company (PSC) or Limited Companies but would be seen as an employee for tax purposes if the intermediary was not used.
From 6 April 2021 the End Client will be responsible for determining whether the Off-Payroll rules apply, and the contractor is deemed to be inside or outside IR35 legislation.
Implications for the Contractor
The new Off-Payroll rules apply to those contractors who contract under a Limited Company or Personal Service Company.
Those contractors will now be made aware if a role is deemed by the client to be inside or outside IR35.
If the role is deemed to be outside IR35 then the Off-Payroll rules do not apply and commencement of work placement will go ahead as normal.
If the role is deemed to be inside IR35, the contractor will be notified of the payroll options available to them so they can make an informed decision.
Majority of contractors have chosen to enlist an Umbrella Company to process payment and manage all tax payments for any ‘Inside’ roles.
At OMPA, we have teamed up with Exchequer Solutions, an experienced payroll company who offer a wealth of knowledge and services to provide the best payroll solutions available.
Their process is quick and simple with no contracts or commitments, they work on a job-by-job basis.
If you want to speak to us directly about how IR35 legislation may affect you please do not hesitate to call us on 0844 880 1335, or contact via email – Info@offshorempa.com
In the meantime, we have also included some helpful FAQ’s below:
- The Contractor works in the UK, but the End User (Client) is outside the UK?
- Yes, IR35 applies
- The Contractor works outside the UK?
- If income tax and social security is paid in full in the overseas country of work, then UK employment taxes do not apply, and neither does IR35; however, if the Contractor is engaged in the UK then just seconded overseas for short periods, with no taxes or social security being paid overseas, then UK employment taxes would apply, in which case so does IR35
- If the Contractor is deemed Inside-IR35, do they attain Employment Rights?
- Not due to IR35 or PAYE, though other Employment Law should be considered, especially the guidance on the Good Work Plan
- What about Direct Contractors (not via an Agency)?
- We encourage moving their Contract and Payroll urgently to an agency, like OMPA, to limit the risk of Employment Rights arising if HMRC challenge the Determination and find the Contractor to be Inside-IR35
- My contractor has done their own Outside Determination and insured it:
- It will still be the End User’s risk, so the Client should seriously consider whether the insurance will cover their risk
- My contractor has a Substitute:
- HMRC’s view is normally a client requires a particular worker; timescales, the nature of the work and security also often mean a client will reject a substitute, in which case “Yes” (the Client has the right to reject a substitute (Inside-IR35) should be selected in CEST (UK Government Check Employment Status for Tax Tool). If it is only due to Qualification that a Substitute is not chosen, then “No” (Outside-IR35) could be selected, but not if the Client makes Qualification impractical or implausible (such as familiar with the project). A right of substitution also does not exist if the client wishes to approve a substitute in advance, such as a pre-approved pool, or after interviews, as there are unlimited chains to the process. Clients should answer if they have a Right to Reject a Substitute Yes (Outside) or No (Inside) with reasonable care; most likely only where the client does not care from one day to the next who turns up to carry out the work, provided that whoever does so is suitably qualified.
- Can a PSC/LTD Contractor, determined to be Inside-IR35, continue to invoice as a PSC/LTD?
- A Contractor might prefer to operate this way if they perform some Inside and some Outside contracts (if they only perform Inside-Contracts there would be little point).
- If a contractor falls Inside-IR35 from 6 April 2020 and starts paying tax and NIC, will this automatically trigger an enquiry into previous assignments?
- HMRC have explained in their off-payroll factsheet that the reform is not retrospective
- If the Contractor is Determined to be Inside-IR35, can they convert to a Permanent Staff position?
- Yes, if the company is offering this, and the salary meets the contractor’s expectations
- If the Contractor is Determined to be Inside-IR35, can they give notice and take a different contract elsewhere?
- Just as much care should be taken if the new Client determines the new Contract to be Inside- or-Outside-IR35
- If the Contractor is Determined to be Inside-IR35, can the contract continue, on a PAYE basis, albeit at reduced Net Income?
- Yes – having collected the Employment Taxes it believes it may be due, this is the Government’s intended outcome