IR35 is still on everyone’s minds and for good reason. The changes to the legislation, which came into effect on 6th April 2021, were previously postponed due to the pandemic and now impact medium to large companies in the private sector.
Determining your IR35 status is no longer just your responsibility. In fact, the end client or agency will be responsible for assessing contractors’ status, which raised a few eyebrows and left many people worried.
As contractor accountants, we want to help you to sort out your IR35 status, so take a look at how the process works in the private sector.
Who’s Impacted by the New Changes?
The new changes don’t apply to everyone, which is good news for many contractors in the nation. In essence, what’s changed is that clients now have the responsibility of determining your IR35 status, while small companies are exempt from the rules.
As a contractor, if you want to work with a small company, you’ll be responsible for determining your status. This will help with the admin, since paperwork will likely grow with so many businesses having to adapt to the new rules.
Small companies, according to the Companies Act 2006, have an annual turnover that doesn’t exceed £10.2 million, have assets that don’t total more than £5.1 million and employ less than 50 people.
The client or agency has to complete a status determination, so there are no blanket assessments that place contractors inside IR35. If you’re not happy with the determination you received, you can dispute the status by appealing to the client. Some contractors will be caught inside IR35 while others will not, so it’s crucial that these determinations are done correctly in order for businesses to remain compliant.
To find out more about the reform in the private sector, check out our “What is IR35?” page and our IR35 update blog. You can easily stay on top of any IR35 news or ask us any questions you may have about this complex legislation.
Are You Ready for the Private Sector Rollout?
If you’re a medium or large company, make sure you’re ready for the changes to avoid issues with HMRC. As a contractor, you can stay compliant by taking the HMRC IR35 test to analyse your current practices, combing through these practices after the test results to see how exactly you’ll be affected, and considering substitutions, which is the right to provide a substitute to do the work for you.
What this means is that if you can provide a substitute, then you’re not an employee of the company and are, likely, inside IR35. You may also want to assess your current wages, since you’ll have to pay more taxes if your contracts are inside IR35.
As a company hiring a contractor, it’s important that you reach the correct determinations and have plans in place in case people don’t want to switch to a PAYE system.
How to Determine IR35 Status
So, who is responsible for determining IR35 status? As we mentioned, it’s the end client or agency that has to decide the employment status of the workers – the determination must be passed on to the relevant parties via a Status Determination Statement.
The written statement has to provide the reasons for the determination as well, and can be contested if the contractor disagrees with it. The company hiring the contractor is responsible for deducting income tax and National Insurance contributions until the contractor receives the statement.
Companies issuing these statements must also keep records for all employment status determinations, any fees that have been paid and the reasons behind the determination, as they may need to be used in the future – or assessed by HMRC.
Small companies in the private sector don’t have to worry about this, so the limited company owner can make the determination instead.
Tools to Help Determine IR35 Status
It’s essential that IR35 status determination is done under ‘reasonable care’, and the government provides a service to help do this. The CEST tool helps HMRC see whether IR35 applies to a specific contract and if the worker has to pay tax through PAYE, for example.
According to HMRC, to use this tool, it’s necessary that people supply information that includes the workers’ responsibilities, who decides the work that must be done, how the worker will be paid, and more.
You may be unsure whether the result you got is the correct one. If this is your case – or simply if you want to know more about IR35 – you can also request help from an IR35 expert. Get in touch with our team today if you’d like more information on how to determine your employment status.
Issues with the IR35 Changes
One of the main concerns regarding status determination is the CEST tool provided by HMRC. While the government says this service has a high degree of accuracy, many people still get inconclusive results, which makes it harder to figure out the correct employment status.
In addition, many people are worried about what the IR35 reform means for their business, such as having to pay more taxes.
Also, companies may not want to hire contractors for fear of incorrect determination, something that can cause many people to struggle. And businesses are concerned that, because the responsibility falls on the end client or agency, they may be tempted to label contractors to be within IR35 to avoid future problems – even if this goes against ‘reasonable care’.
Another concern is that a great number of companies may not be aware of their new responsibilities and, therefore, may not be prepared for the reform and everything it entails.
IR35 is complex because status determination depends on a great number of factors. If you want to be sure of your determination or would like more in-depth information about IR35, don’t hesitate to speak to us on 0330 024 0406.
As our client, we’ll get back to you on the same day if you contact us by 3pm, so you’ll always get a quick answer to your most urgent queries.