IR35 is the word commonly used to describe UK tax legislation aimed at preventing tax avoidance by intermediary workers, mainly Limited Companies. These off-payroll working rules targets those Personal Service Companies who the government believes are wrongly disguising their work as business transactions to avoid paying the appropriate income tax and national insurance that would be owed if they were an employee of the end client.
Some key definitions
Before we go into the history of the IR35 rules and what’s changing, here are some key definitions and what they mean:
- End Hirer – Organisation looking for a contractor business to complete services and project.
- Fee Payer – Company (often the recruitment agency) who pays the PSC for their services.
- PSC – (Personal Service Company) a company setup for one individual to get paid for a contract (often a contractor’s Ltd Company).
- Reasonable Care – Obligation of the end hirer to ensure that they have taken enough steps and care when assessing the status of the off payroll workers.
- SDS – (Status Determination Statement) is a comprehensive statement from the client which: Declares a contractor’s deemed employment status following an IR35 assessment. and provides reasons for reaching this conclusion.
- Inside IR35 – To be ‘inside IR35’ means that you are considered, for tax purposes, an employee of your end client and therefore subject to PAYE.
- Outside IR35 – To be ‘outside IR35’ means that you are operating as a genuine business, and therefore operating outside of the IR35 rules.
A Potted History
The Inland Revenue issued a press release (IR 35) which outlined the Government’s plans to clamp down on the growing use of one-man-band limited companies to provide professional services to clients, where the individual was still working in a manner akin to a traditional ‘employee’, while enjoying the tax benefits afforded them by a corporate structure.
The IR35 rules became law via the Finance Act 2000 (Schedule 12) and have remained on the statute book ever since.
IR35 is rolled out to the public sector. A new IR35 Employment Status Test was launched in early March 2017 – to help workers, clients and agents determine whether or not someone is caught by IR35.
At the October 2018 Budget, the Chancellor announced an extension of the existing off-payroll working rules to the private sector, effective from April 2020. This will impact clients who are defined as larger and medium-sized businesses’.
Due to the strain on national resources as a result of the Coronavirus pandemic, the Chancellor announced in March 2020 that the upcoming April extension of the IR35 reforms into the private sector would be postponed 12 months until April 2021.
Up until 2017 in the public sector and April 2021 in the private sector, the responsibility for determining the IR35 status and any tax liability lied with the PSC (contractor). From April 2021, in the private sector, Status Determination will be the responsibility of the End Hirer and tax responsibility will be with the Fee Payer.
Should it be proved that the End Hirer has not taken “Reasonable Care” in coming to this Status Determination, any tax liability would pass from the Fee Payer (often the Recruitment Agency) to the End Hirer. It is therefore essential that you choose a compliance solution that allows you to meet this criteria and eliminate your potential retrospective tax liability.
How can you ensure you’re taking ‘Reasonable Care’?
As well as offering contract and permanent recruitment services, Corecom Consulting offers a fully insured compliance product, its services and education, free of charge. We’re passionate about hiring the best IT talent but also making sure we, our clients and our contractors are ahead of the curve in legislative compliance.
Corecom IR35 Connect is our comprehensive compliance solution for contractor hiring businesses. It consists of three key, connected services that insures your business against any potential tax liability, reduces contractor management and administration and limits the strain of contractor cash flow:
- IR35 Protect
A fully insured, client facing, online platform for Status Determinations protecting all parties in the supply chain.
- Corecom Projects
A project/product solution, based on deliverables and milestones, wrapped up in a single Statement of Work managed by a Technical Engagement Manager for your contractor recruitment
- Corecom Payroll Outsourcing
The option to outsource the payroll of your direct contractors, removing your “Fee-payer” tax liability and improving your business’ cash flow.
Book your demo
Don’t just take our word for it – book a demo today to discuss your specific requirements. We’ll show you how easy it is to use our online platform for your Status Determination Statements.