I have questions: Pre-empting the FAQs for the upcoming changes to IR35

posted on December 13, 2019in the Blog Category

I have questions: Pre-empting the FAQs for the upcoming changes to IR35

When HMRC make changes to tax arrangements, however small, it tends to make ears prick up, intakes of breath are made, and palms become clammy.  IR35, the regulation introduced in 2000 to tackle ‘disguised employment’, where an individual uses a limited company to carry out professional services, but works in a manner more like an ‘employee’, was not a small change.  On April 6th, 2020, IR35 is changing again and it has a few people nibbling at their thumbnails.

Those it could affect are beginning to compile questions, if only in their own heads.  In this piece, we’ll try to pre-empt these questions and add some clarity to the muddy waters…

How will I know if my contract is within the scope of IR35?

Knowing the factors the government will take into consideration can assist you in determining whether you are working ‘inside’ or ‘outside’ of IR35.  Some of these factors include, but are not limited to, the following:

Mutuality of Obligation

Working as a self-employed contractor means you can work in a project-by-project basis without any obligation to continue working for that client once the contract comes to an end.

If a client is obliged to offer you paid work and you’re obliged to take it, this is an example of a contract of employment, meaning you fall within IR35.

Right of Substitution

If you have the freedom to choose whether you’re working on a project or hiring someone else to do it, then you’re not considered an employee.  After all, if you’re allowed to provide a substitute to finish your work, then you’re not under the direct supervision.

Control

You must have control over how you complete the work for a contract to fall outside of IR35.  If a contract sets working patterns and the client provides excessive input over how work is completed, then it’s likely that this will fall under employment rather than contract work.

More than one job

Are you allowed to do other work? If yes, you would be deemed to be ‘outside’ of IR35, as employees don’t usually have the right to work for several clients at once.

Contract Termination

Most employee-employer relationships require notice periods in order for a worker to terminate their contract, however, if your ‘outside’ of IR35, then you’ll be able to do so at any time without having to give notice.

How will your client determine your status under IR35?

From 2020 clients in both the public and private sector will determine your status under IR35. This is usually done in one of two ways.

Using the HMRC’s IR35 tool – Check Employment Status for Tax (CEST) or by using an independent IR35 assessment service.

They will then issue you with a ‘Status Determination Statement’. Failure to provide this will mean that the client has failed their obligations and will be considered the fee-payer.

What happens if I disagree with the outcome?

If you disagree with an IR35 decision, you must contact your client who has 45 days to respond to your dispute with their reasons for making the decision.  From here, your client will be required to confirm or change their decision and, if necessary, provide a new status decision.  If your client fails to do this, they will become the fee-payer, meaning the IR35 liability will transfer to them if they don’t carry it already.

What’s the impact of working inside IR35?

When working inside IR35, you’ll need to pay National Insurance Contributions (NICs) and Income Tax on your earnings.

For those currently working in the private sector, this is paid via a ‘deemed payment’ which is the payment you will be required to make to HMRC at the end of the tax year, taking into account the extra tax you must pay as a result of working inside IR35.

Calculating the ‘deemed payment’ is fairly complex. That’s why, in many cases, contractors seek professional help in doing so.

Contractors working inside IR35 in the public sector currently, and those working insider the rules for medium and large companies in the private sector from 6th April onwards, do not need to work this out.  Your fee-payer will do this on your behalf and deduct the NICs and Income Tax from your invoice before paying you.

How do I prepare for IR35?

We advise that before the 6 April 2020 deadline you prepare by:

1. Assessing your current working practices, do you fall ‘inside’ or ‘outside’ IR35?

2. Think about how IR35 changes could affect how you do business and what you can do to help solve potential problems.

3. Seek expert advice, before changing how you conduct business, get advice to make sure any changes you make are still compliant with IR35 and other laws.

You can find further guidance regarding IR35 on the Government website or please give us a call today and we will be able to answer all of your questions and help you to understand the details of IR35.

AvatarWritten By: MBL Marketing

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