What is IR35?
IR35 (or the Intermediaries Legislation) is intended to combat incorrect payment of tax by workers supplying services to clients via an intermediary (through a limited company, for example), where the relationship with the client would be that of an employee were it not for the fact that there is an intermediary in place. In such a case, the worker should pay tax on a PAYE basis, as an employee does.
How is an IR35 determination decided?
There are many factors which can determine whether you are inside or outside IR35. It's not always dependent on what's written into your contract, but more on what happens in working practice.
Take, for example, a builder who you've contracted to build an extension on a house. There are certain constraints on their work, such as where you'd like to extension built and their obligation to carry out the work at certain hours of the day, but otherwise, it’s down to the builder as to how the work is done. It's also possible for them to send a replacement builder to complete the work, which you wouldn't mind, providing the work is completed on time and to specification. They also have no obligation to accept further projects from you, nor do you have to offer any.
By contrast, employees, or those deemed to be employees, are usually required to turn up to a certain location, work within certain hours, and are directed by their manager on how the work should be completed. Once a task or project is finished, they'll expect another one to complete and the employer will expect them to continue working.
When does the new IR35 legislation for the private sector come into place?
From 6 April 2021, how the rules are applied will change.
If you are a worker and your client is in the public sector, it’s their responsibility to decide your employment status. You should be told of their decision.
If you are a worker and your client is in the private sector, it’s your intermediary’s responsibility to decide your own employment status for each contract. The private sector also includes third sector organisations, such as certain charities and community organisations.
All public sector authorities and medium and large-sized private sector clients will be responsible for deciding if the rules apply to their workers, and as such, if they are within the scope of IR35 or not.
If a worker provides services to a small client in the private sector, the worker’s intermediary will remain responsible for deciding the worker’s employment status and whether the rules and subsequent IR35 status apply.
Who will be affected by IR35?
You may be affected by these rules if you are:
A worker who provides their services through a UK-based intermediary
A client who receives services from a worker through a UK-based intermediary
An agency providing workers’ services through a UK-based intermediary
What if I think my assignment is outside, but my client or agency thinks it's inside IR35?
The responsibility for making this assessment will sit with the person making the payment; either the client or the agency (or often a combination of the two). It is their decision, not the worker's.
How will I know if my contract is within the scope of IR35?
Status should be decided on a case-by-case basis and there will be no "blanket assessments" made across a client, role, or agency contract. La Fosse have devised a comprehensive tool alongside a leading provider to ensure maximum accuracy when assessing each case.
The legislation requires both the end client and the contractor to complete these questions in relation to each new assignment. These questions must be answered accurately and with reasonable care, and it will be La Fosse's responsibility (as the fee payer) to ensure compliance.
What happens if I'm deemed inside, and what are my options?
If your status is deemed to be within the scope of the regulations, you'll need to pay tax and NI contributions as if you were employed. La Fosse will work with you on this to help decide the best solution going forward.
Will IR35 affect me if I work through an umbrella company?
If you're already contracting via an umbrella company, you will not be affected by IR35, as you will already be taxed under PAYE.
La Fosse hold a PSL list of recommended umbrella companies - please get in touch if you require this.
If there is any ambiguity around determining your employment status, or, if you have any questions or want to discuss what IR35 means for you, please get in touch with your relevant consultant or Katherine via the below channels: