With the upcoming reforms to the IR35 legislation, we continue to work with our clients on keeping their contractors engaged to minimise any disruption to their business. Here we address the most frequently asked questions we have heard in our conversations.
At Aston Carter, we are working closely with IR35 specialists, HMRC experts, and key industry experts to be able to provide our customers with the most relevant and up-to-date information about the reforms as it becomes available.
The following information is intended for general information and guidance only. Anyone requiring specific or detailed legal advice should seek the expertise of an independent lawyer who is an IR35 specialist.
To increase compliance with the existing off-payroll working rules, medium and large organisations in the private sector and all size organsiations in the public sector will become responsible for assessing the employment status of individuals who work for them through their own limited company. The reform does not introduce a new tax or apply to the self-employed, who are outside the scope of the existing rules.
What the draft legislation confirms
From April 2020, private sector clients will be responsible for assessing whether contractors are self-employed by applying the IR35 criteria. This shifts the responsibility and risk, which has been that of the contractor, onto the end-client. The change in legislation excludes engagements with small companies, where contractors will continue to determine their own IR35 status.
This means that for medium and large-sized businesses, end-user clients will be responsible for making IR35 determinations (determining whether or not a role falls 'inside' or 'outside' IR35) for our contractors.
What has changed or been expanded:
- End-clients must pass their determination to the contractor and not just the supplier they have the contract with. Contractors will have the right to challenge determinations with which they do not agree.
- All parties in the chain must take responsibility for ensuring:
a) determination has been made;
b) that determination is passed down the chain to the fee-payer and the contractor; and
c) the appropriate tax and National Insurance Contributions NICs are paid.
Anyone in the chain who does not do as they are required could be liable for any unpaid taxes which have resulted from their inaction.
Where a party in the chain disappears or HMRC cannot trace that party, then liability can keep moving back up the chain to the end-client. End-clients will now have much more risk where the relevant taxes are not paid to HMRC and for this reason will likely be much more interested in the compliance of their supply chain.
Since publishing the IR35 draft legislation, HMRC has entered into another consultation which is due to be completed in time for the implementation of the reforms in April 2020.
Our Commercial Contracts Team is currently reviewing all client agreements to confirm we are able to supply Temporary Agency Workers (TAW). If it's identified that updates to the contract terms are required; an addendum will be drafted and shared with you for review and signature.
We believe the main impact of this reform will be a significant reduction in the number of contractors considered to be operating outside of IR35. This will result in a substantial number of contractors currently operating through their own limited company, taking up assignments as Temporary Agency Workers subject to PAYE deductions.
The Agency Workers Regulations will apply to all Temporary Agency Workers. In very brief terms, this means that after 12 continuous weeks on assignment at a client, various rights and basic benefits afforded to permanent employees at the client will also be afforded to the Temporary Agency Worker.
Under the Pensions Act a Temporary Agency Worker would also be entitled to enrollment in a pension
Yes, the current contractors in your team can continue contracting post April 2020. However, the determination on whether their role is inside or outside IR35 may change the way they operate, from working as PSC to a Temporary Agency Worker.
As Temporary Agency Workers are subject to PAYE deductions (income tax and employee NIC) which are higher than the effective tax rates under the PSC structure, to attract and retain Talent there may be a need to increase the amount you are willing to pay contractors. Please speak with your Aston Carter representative who can provide you with further information around the pricing implications of IR35.
IR35 applies to all contracting positions, it is not for an umbrella company to confirm whether a contractor is inside or outside of IR35 – this rests with the end-client. Any claims to the contrary should be scrutinised. Contractors engaged as Employees via an Umbrella company should already be subject to PAYE deductions therefore nothing would need to change.
Working under a “services agreement” alone does not automatically exempt a contractor from IR35 as it depends on the facts of each case and whether the role they work in is deemed inside or outside.
The ultimate decision for declaring IR35 status on a job spec sits with our clients, however we would expect that at least an initial assessment will be made and set out in the job spec. In limited situations, this may be subject to change.
This varies greatly dependent on the size of each client and their reliance on the contractor market. Most of our clients are still in the discussion and planning phase and trying to determine the best solution for their business. This tends to mean the creation of a Steering committee, consulting IR35 experts and putting together a short- and long-term plan on how they intend to tackle these changes.
Aston Carter provide project based and outsourced services through tailored solutions and rapidly mobilised, high-performing teams.
For further information and to find out how we can help you in your individual situation, please contact your Aston Carter representative or contact our dedicated IR35 support team at IR35@AllegisGroup.com.