IR35 in the Private Sector - April 2020
What is IR35?
It is not new. IR35 has been around since 2000 and was written to combat tax avoidance by contractors working through their own Ltd Companies but effectively doing the same work as a permanent employee.
What has changed?
The government has not been very good at pursuing small companies to recoup their lost NI contributions and in some cases, PAYE.
They have therefore decided to shift the focus – as of April 4th 2020 it will be the end Company’s responsibility to decide if someone is “inside” or “caught” by IR35 or outside.
If they are found to be “inside” then they must pay the same NI and tax as a permanent employee.
How do I tell if my contractor is inside or outside of IR35?
HMRC has produced an online tool which asks you a number of questions and will then advise you whether your contractor is inside or outside: https://www.gov.uk/guidance/check-employment-status-for-tax
Broadly however, there are three key factors to determine whether someone is caught by IR35:
Substitution – Is the contract worker required to carry out the work themselves, or can they send someone in their place?
Control – If you or your superior has the right to exert a significant amount of control over the work that a contractor is carrying out, whether this is where the work is carried out, what the workload is, or how the work is completed, it is a sign that they could be inside IR35.
Mutuality of obligation (MOO) – Does the contractor have to accept work from you?
Do I need to release all my contractors?
Fundamentally this is your decision. However, there are some factors to consider:
How many of your contractor workforce are likely to be affected?
How critical are contractors to your project / business?
Have you spoken to your workforce? (Many will have already done significant research on their personal situations).
What are your suppliers doing about the situation? Do they genuinely understand the rules and how are they helping you?
Based on these answers, you should be able to plan your company strategy.
How can Vertex Solutions help?
Vertex are fully aware of IR35 and have been since its inception. We currently work with Public Sector customers who went through this journey in 2016/17.
We are very happy to advise and support your business through the transition. Please drop us an email to [email protected] to find out more.
Mark, interesting article but it's worth pointing out that the CEST and MOO should not be linked here given that it doesn't consider MOO at all, despite it being one of the key case-law tests for self-employment.? The CEST has been dismissed as woefully inadequate by tax specialists, IPSE and the like.