It is true – using contractors is advantageous for employers who do not want to indulge in paying National Insurance or offer additional benefits. As of now, the government has postponed the implementation of the IR35 until next April because of Coronavirus pandemic. However, you should still be aware of the assessment of IR35 tax reforms.
How to Establish Your IR35 Status
In simple terms, HMRC views you as an employee, which means you have to pay income tax and National Insurance. Conversely, if you are outside IR35, then you would not have to pay anything. Employers are responsible for establishing the status of their contract or payroll workers. Remember, it also involves all of the PSC contractors.
HMRC makes it mandatory for employers to produce evidence of an SDS (Status Determination Statement). The legislation outlines that employers must share the Status Determination Statement with all workers.
Practically, you may leave out the blanket determinations of “inside IR35”. However, you do not want to make the mistake of failing to make reasonable changes in assessing, agreeing, and preparing the determination.
Tax Changes You Need to Know
HMRC clearly states that there are differences related to IR35 “before” and “after” April 6, 2021:
Before 6th of April 2021
According to HMRC, if you operate in the public sector, it will be your responsibility to decide the employment status of workers. If you, one the other hand, operate in the private sector like a charitable organization, you will have to determine employment status for every contract individually.
After the 6th of April 2021
HMRC outlines that all public-sector organizations (i.e., large and medium-sized) will have to figure out whether or not the rules are applicable. It means if a worker offers services to a small company in the private sector, the responsibility will lie on the shoulders of the worker’s intermediary to decide his or her employment status.
What about Exceptions?
HMRC has also established that small businesses will get an exemption from the newly determined IR35 regulations.
The Right to Appeal
It practically comes down to determining whether agencies can apply for the right to appeal. However, it is safe to assume that the fee payer will have to work side-by-side with their companies throughout the procedure to determine their eligibility for IR35 status.
HMRC lays out clearly that contractors will have the complete freedom to appeal. The underlying purpose of making contractors part of the determination process is to reduce the number of disputes. Additionally, the statutory provision of IR35 legislation dictates that the contractor can appeal to any determination in 45 days. And if the appeal turns out to be successful, the organization will have to make a new SDS.
As per IR35 tax reform legislation, a contractor who performs duties for an organization, just like an employee, will have to get a similar tax deduction from their pay. Businesses, however, should have accurate data input to function regularly. Besides, companies that employ many contractors will have to do an internal audit for their current workforce, which is a win-win first step.
We can help with all of your business and personal tax and financial planning needs. For a strategic review of your finances, please contact us.
Disclaimer: We don’t take any responsibility for actions taken based on above information. Please speak to our consultants if you need more information. This guide was written specifically for Smart Accounting clients. Some of the information contained in this guide might not be applicable if you do not have a business managed by Smart Accounting. By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details are correct at time of writing.