What is IR35 | Off-payroll Tax
IR35 was intended to stop temporary workers functioning as ‘disguised employees’, by imposing a similar tax rate as to employment? New ‘off-payroll’ rules were executed in April 2017 for contractual workers working for public sector associations. Rather than temporary workers themselves being in charge of determining their IR35 status, this has been handed over to the engager of every contractual worker i.e. the client. Where a contractual worker is considered to be ‘inside’ IR35, the charge payer must deduct representatives’ NICs and income tax from the temporary worker’s compensation, along with paying employers NICs.
Currently, there are different rules for the public sector and private sector contracts:
Public sector contracts- the client is responsible to check whether the contractor falls inside or outside of IR35. In case they come under the purview of IR35, the client needs to deduct tax and NICs and report them to HMRC.
Private sector contracts- the contractor is responsible for working out whether they fall inside or outside of IR35, if inside then they need to pay the tax and due NICs.
From April 2020, the obligation of setting IR35 status will be passed from contractual workers to the large and medium private area organizations that connect with these contractors:
- End-client’s IR35 status decision must be given to both the temporary worker and the party legitimately captivating the contractual worker. Until this is given, at that point the end-client will be responsible for making NICs and income tax deductions.
- In case one doesn’t agree with an IR35 status choice, there is another customer-driven difference process, which obliges the end-client to review the decision followed by a reasonable response within 45 days. On the off chance that they failed to do this, at that point the client (not the contractor/agent) will assume the IR35 obligation.
How to be compliant with IR35 off-payroll tax
In order to be IR35 compliant, below are the important factors to be considered:
- Substitution- does the temporary worker reserve a privilege to give a substitute specialist in case they are unable to provide services for a period of time?
- Basis of Payment- is the contractual worker paid by the job, or on a fixed hourly/daily rate?
- Part and Parcel- up to what extent is the temporary worker attached to the association? Do they act more like a permanent employee rather than a self-employed contractual worker?
- Mutuality of obligation- is the agreement open-ended, and is there the expectation for progressing work by the temporary worker once the agreement terminates?
- Control- to what extent is the contractor under the direction and control of the end client?
- Provision of Equipment- does the contractor provide any equipment, or is this all provided by the client?
- Financial Risk- do all the risks lie with the client, or could the contractual worker endure punishments due to non-delivery, or other issues which may result from the contract?
- Exclusive Service- does the contractual worker have more than one client, or must he/she work solely for the single client being referred to?
- Intention- what is the real working connection between the parties? Is it really one of ‘self-employment’?
- In Business on Your Own Account- how do different parts of the contractor’s work show that they are a business – do they have company stationery, a website/email, do they promote? It is safe to say that they are VAT enrolled, do they have business insurance?
Further Off-payroll working through IR35 can be confirmed through:
Stop the off-payroll IR35
After the Autumn Budget 2018 announces that IR35 will be extended to the private sector in April 2020, a campaign has been launched headed up by ContractorCalculator in order to avoid roll-out of private sector reforms and to review the Intermediaries Legislation (IR35) entirely.
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