Intermediaries Legislations IR35

05 January 2016

Intermediaries Legislations commonly known as IR35 was introduced by HMRC in April 2000.

The legislation that aims to identify individuals that are using a 'personal service company' (PSC) or a 'limited liability partnership' (LLP) as an intermediary to avoid paying the correct tax and national insurance and get an unfair advantage according to HMRC, who will not recognise these individuals as self-employed but rather 'disguised employees'.

IR35 was introduced to allow HMRC to crack down on 'disguised employees' and stop the loss of tax and national insurance to the exchequer.

Until 5 April 2015 there was an online system called the business Entity Test to assess whether businesses were at High, Medium, or Low risk of IR35 applying. This was withdrawn after much criticism that it was biased in HMRC’s favour.

Now in order to assist businesses to distinguish between employees and self-employed, an employment status indicator (EIS) tool has been developed which can be found on HMRC’s website.

You answer a series of questions about the working relationship between the engager and the worker and a conclusion is provided, it’s not necessary to provide personal details.

Both the engager and the worker are responsible to distinguish the workers employment status as the engager would have to ensure that they fulfil the tax and national insurance contribution liabilities.

To determine whether you are caught by IR35, HMRC will look at both the way the work is carried out by the worker on daily basis and the written contract between the parties.

The main assessment criteria’s are:

Personal Service/ Substitution

Supervision, Direction and Control (SDC)

Mutuality of Obligations

One of the strongest indicators of self-employment is the right of substitution, where a worker can either provide a substitute or engage a helper to provide a service rather than being individually hired to provide their services personally.

Another test to clarify ones employment status is the degree of Supervision, Direction or Control over how the worker completes their tasks. A Self-employed worker may be asked to perform a particular task or provide a service at a specific time and location but it’s not likely for the client to have control over how the task is performed although this doesn’t affect the rights of the client (engager) to request the work carried out to be of certain quality.

An employed person on the other hand is subject to a high degree of control, as they are likely to be told where and how to perform their tasks.

Finally mutuality of obligation is another area for HMRC to determine an individual’s employment status. A self-employed contractor would benefit from providing their services efficiently and moving to another assignment or task and would not be entitled to expect further work form the same engager. However an employee would be supplied with continues supply of work form the employer and would be expected to carry out the task when he is required to do so.

When work is regularly provided to a contractor HMRC may take the view that an employee status has been created by custom and habit and as a result a great emphasis is been place on the right of the contractor to walk away from a contract early, if they choose to.

If you aren’t certain about your IR35 Statue, we can help check your contract for IR35 Compliance.

We provide a detailed contract review service which can be used in defence of your IR35 status.

If you require any assistance with any aspect of your tax affairs please contact us or get in touch today by calling 0203 039 3993.

Intermediaries & the New Travel & Subsistence Rules

11 December 2015

On 9th December 2015 the long awaited draft legislation was published in respect of tax relief on travel and subsistence costs for workers who provide their personal services through employment intermediaries.

Under the new rules if payments are made or reimbursed to a worker for travel and subsistence costs then the payments must be subjected to income tax and national insurance as if they were earnings from employment.

Further, there will be no entitlement to tax or national insurance (NIC) relief for the travel and subsistence costs of the worker.

From 6th April 2016 a worker who provides their services through an intermediary (recruitment agent, umbrella company, personal service company, or similar) will be subject to the new rules if:

  • The worker personally provides services to another person (the client) and these are not excluded services, and
  • The services are provided not under a contract between the client and the worker but under arrangements involving an employment intermediary.

The new rules will not apply if the worker is not subject to Supervision, Direction of Control (SDC). However, SDC is assumed unless it can be shown otherwise.

What is required to demonstrate a worker is not subject to SDC is unclear, some sort of documentary evidence will be required. If HMRC decide that this documentary evidence is fraudulent then the liability for unpaid tax and NIC falls upon the person who provided the document.

Personal service companies that are not caught by IR35 are also not subject to the new rules. However, it should be noted that there are proposals to widen the scope and improve the effectiveness of IR35 in the very near future.

Powers have also been introduced that enable HMRC to enforce recovery of any unpaid amounts of tax or NIC arising from a failure to apply the new rules by a company from a director or officer of that company.

The new rules are just a few months away so if you work through any kind of intermediary you need to take steps now to work with them to either (1) ensure there is sufficient documentation in place to demonstrate you are not subject to SDC, or (2) renegotiate rates with the client to ensure you are not out of pocket when your tax relief is withdrawn.

If you operate through a personal service company you should ensure your contracts and working practices are regularly reviewed to ensure they are not caught by IR35.

For further information please contact us on 0203 039 3993.

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