What is IR35?
IR35 is an anti-avoidance tax legislation designed to tax disguised employment at a rate similar to employment. The legislation was introduced in 2000 in order to ensure that Personal Service Company (Limited Company) contractors pay the right amount of tax.
The responsibility for determining the IR35 status of the contractor lies with the end user (the Client).
The fee-payer (the Agency) will be responsible for ensuring that the contractor pays the correct amount of tax and National Insurance for workers both inside and outside IR35.
Small businesses are exempt from the new IR35 rules. A small business is defined as a company which satisfies two or more of the following requirements:
has an aggregate net turnover less than £10.2 million
has an aggregate balance sheet total less than £6.1 million
has less than 50 employees
Factors that determine the IR35 status of the Contractor
IR35 exists to determine the difference between genuine contractors who provide a consultancy type services through their PSC and those who could be considered disguised employees.
Outside of IR35 contractors providing specialist consultancy services via their PSC will benefit from paying lower rate business taxes. Contractors that fall within IR35 are required to pay the same amount of tax / National Insurance as they would if there were permanently employed.
There are a number of key indicators that will determine the IR35 / employment status of a contractor, some carrying greater weight than others. These indicators typically assess the following:
The type of service being provided by the contractor
How the end clients engages with the contractor
Distinctions between the contractor and the end clients permanent employees
Key indicators include but are not limited to; Supervision Direction & Control (SDC), Mutuality of Obligation (MOO), Right to Substitute, Financial Risk and factors that would indicate distinction between the contractor and the end clients employees such as provision of equipment, company benefits, flexibility and location of work to name a few.
There is a cost benefit for contractors who operate outside of IR35 and because of this a certain percentage of the contract workforce will only accept outside IR35 assignments, with the expectation being that they will be engaged by the end client in a compliant manner. It is down to the end client to decide whether they are comfortable engaging contractors in this way.
If they’re not, there is the option of bringing in a contractor on an inside of IR35 basis, engaging with them in the same way as they do their permanent employees. Depending on the nature of the required work this may result in requests for additional funds to cover the contractor’s loss of earnings, though this isn’t always the case.
For more information on the indicators that determine whether IR35 applies please contact IR35@coretalent.co.uk
The Clients Responsibilities
The HMRC expects organisations to take ‘reasonable care’ when determining a contractors IR35 status determination. To demonstrate reasonable care clients must be able to evidence how they have determined the IR35 status of each individual contractor.
Once a status determination has been made the client is required to provide an IR35 Status Determination Statement (SDS) for each contractor to both the contractor and the agency that placed them.
The liability for the failure to deduct the appropriate taxes will sit with the end client unless they have supplied the contractor and the agency with an IR35 Status Determination Statement.
Once the SDC has been provided the liability will transfer to the agency who will become responsible for ensuring the workers’ pay the correct amount of tax.
We require all our clients to provide us with an SDS for all new contract assignments prior to commencing the search for a suitable Candidate.
Helping You Make the Status Determination
Core Talent Recruitment have their own team of IR35 experts who can provide detailed advice when it comes to all matters IR35, and on the rare occasions we can’t answer your query we have access to IR35 expert lawyers who can provide answers within a 24 hour period.
We are happy to meet with both current and perspective clients via video technology should you require help with determining whether an assignment should sit outside of IR35 or not.
To arrange a meeting please contact IR35@coretalent.co.uk
Outside of IR35 Contractors
Contractors determined to be operating outside of IR35 are permitted to provide their services through a Personal Service Company, and are able to pay themselves a salary, draw the remainder of income as dividends and remain responsible for their taxes.
Inside of IR35 Contractors
In order to ensure that 100% PAYE compliance is achieved for captured contractors we will payroll them through our Umbrella partner Brookson One. The correct amount of tax and NI will be deducted at source prior to payments being processed into the contractor’s bank account.