Guide to IR35

GLEESONRECRUITMENTGROUP

‘IR35’ is a real buzzword at the moment but what is it,

and how will it affect you? Here at Gleeson Recruitment Group, we have set about finding answers to some frequently asked questions about the upcoming changes to

the legislation.

The Intermediaries Legislation (commonly known

as IR35) was established in 2000 to deter alleged tax avoidance via the use

of Personal Service Companies (PSCs). This is known as ‘disguised employment’: where a person

acts and is treated as a company employee but is paid through their own limited company (PSC), allowing

them to take advantage of considerable tax breaks. The original legislation stated that it was the contractor’s

responsibility to self-assess, declare and pay the appropriate tax; however, the Finance Act 2016

announced that the responsibility would shift from the contractor to the end client. These changes

were launched into the Public Sector in 2017 and will be launched into the Private

Sector on 6th April 2020.

What is IR35?

Each assessment must be carried out with,

‘reasonable care’ by the end client; you as the end client then

have a legal obligation to pass that information down the contractual supply chain. A failure to pass this information

on could result in the interception of liability. Wherever the assessment has

been made incorrectly or without reasonable care, that entity will

be liable for any unpaid taxes.

If your organisation is a medium to large company (as

defined in s382 of the Companies Act 2006), and you engage with contractors, changes to the IR35

legislation will likely affect you in some way; it’s important to understand what

impact that these changes will have on your business and how you can

prepare for them.

Who will it affect?

The liability may have shifted, but the way that IR35 status is assessed remains the same: an employment test

is carried out, on a case to case basis. The employment test focuses on actual working practices

as opposed to what is contracted. There are three main criteria used to determine whether the IR35 legislation

applies to your contractors or not:

1. Control: Does line management dictate tasks and the hours in which those tasks ought to be completed?

2. Right of Substitution: Do you prohibit contractors from sending in a substitute to complete work in their place?

3. Mutuality of Obligation: Is your organisation obliged to provide the contractor with work and

are they obliged to accept it?

Determining IR35 Status

If the answer is no, then the chances are that your contractor’s work sits ‘outside’

of IR35. If you answered yes to one (or more) of the above, then there is a high chance that your contractor is

at risk of falling ‘inside’ IR35. It’s important to note that falling inside the IR35 legislation does not mean that a contractor is

entitled to other employee rights or benefits (such as maternity and sick pay).

HMRC’s online CEST tool, which has been used by public sector end clients to determine employment status, has been known to provide inconsistent

results, therefore, private sector organisations are (rightly) questioning whether it is robust enough to be used in isolation for making this

assessment. HMRC are working to update the CEST tool (due to be ready by December 2019) and have stated that so long as the information provided is correct, any decision made by the tool will be honoured

by HMRC.

Businesses also need to provide a platform whereby contractors may appeal their decision. They must

respond to each appeal within 45 days.

How to prepare for April 2020

These changes will affect any contracts or

payments that run past 6th April 2020. We recommend that our clients

engage with a professional expert to perform a risk-based audit of their active contractor base ahead of the legislation taking effect. Experts can

also provide guidance around how working practices can be refined, to ensure that future assignments contractually reflect the working practices of each

role (which should avoid any discrepancies affecting the assessment of IR35 status going forward).

They will also be able to suggest robust processes for making the IR35 assessment

with “reasonable care” which should avoid risk-transfer.

IR35 Timeline

We’re Here to

Help

We’re sure you have your IR35 strategy

covered, because as of April 2020 it will be down to you to carry out employment status assessments to determine whether individuals fall

‘inside’ or ‘outside’ of the IR35 legislation. As one of the largest recruiters of temps and contractors outside of London, we

have a solution to fit in with your strategy, whatever it might be.

Solution 2:If they fall inside,

we will withhold the relevant taxes at

source.

Option 1:You are happy for

candidates to continue to be paid via Personal

Service Companies (PSCs).

Solution 1:If a contracter falls outside of the IR35 legislation, they will continue to be paid

as usual.

Solution 2:Contractors will be

paid via an Umbrella; we have an audited

preferred supplier list (paid via PAYE).

Option 2:You have decided against the use of

Personal Service Companies.

Solution 1:Contractors can be

added onto our payroll (PAYE will be withheld at source).

Your contractor

assessment process must be carried out on a case to

case basis. Blanket decisions may force some genuinely self-employed

contractors to fall inside of IR35 (which could result in an unnecessary loss of earnings). Also, a blanket ban of all contractors directly contradicts

your responsibility to carry out assessments with

reasonable care. If you’re unsure

of next the steps to take, Gleeson Recruitment

Group can support you: we are working closely with our clients to determine the risk profile of their

current contractor base and we have partners who can tailor the best

solutions for all IR35 queries. Get in touch today to find

out more.

info@workwithglee.com 0121 631 1751

GLEESONRECRUITMENTGROUP