“Arghhh! IR35!!” I hear finance and HR people shouting in frustration!
I remember when the first IR35 rules came in in 2000. I feel old…. (or should I say experienced?)
The Government are closing the loophole that contractors have been exploiting for better tax arrangements for years. It also brings into the light the matter of what is an employee employer relationship which is also a major problem. This applied to the public sector and now applies to the private sector.
The new rules will apply to organisations of:
- Turnover over £10.2M
- Balance sheet exceeding £51M
- An average of over 50 employees
Organisations that meet the above criteria are expected to identify the correct employment status of any of their contractors and work supplied under contract from 6th April 2020. This has now been postponed for 12 months due to the impact of the Coronavirus.
Here is the information you need to know to plan ahead.
They can do this by producing a written document called a “status determination statement” or SDS. This statement must include the status decision made on engagement of the contractor and the reasons which led to that decision.
What is the Employment Status test?
- Control and Direction – the client tells them exactly how to complete work or tasks
- In business on own account
- Personal service and substitution – if they are on holiday or sick, no one fills in for them
- Mutuality of obligation – they can say no to your work requests, and you don’t have to give them work
- Financial risk – they are liable for mistakes etc.
- Integration – they present themselves as part of your business
- Equipment provision – you provide them with equipment, software, tools, vehicle, PPE etc
- Exclusivity – they only have one client at a time
- Regularity of payment – e.g. they get paid monthly on the same date each month
Should these criteria be met then you would have to report them on your SDS. Don’t try and “fudge” the SDS, if the HMRC decide that your contractor is in actual fact an employee – your organisation will be liable for PAYE and NI contributions for that individual. The SDS also needs to be done whether IR35 applies.
Breathing Space HR have dealt with employment status on many occasions and have templates for both SDS and sub-contractor agreements – please call us for further advice on the employment status of your contractors.
If you have sub-contractors, you will have to consider whether they are actually contractor or are they employees? If they are, then you may have to adjust your organisation and finance budgets to bring them on to the payroll and supply them with employment contracts. It may the situation that particular contractors might not work for you in future, but I am pretty sure that those contractors might find themselves short of work due to the fact that most organisations will need to comply with the rules.
This may affect quite a few outsourced services, including HR consultancy. In general most HR consultants are self-employment or limited companies with one employee. Breathing Space HR manage HR Services as a larger company with no liability in a potential employment status for our clients and their allocated HR Business Partners.