Will IR35 affect your business?
If you operate in the private sector and a contractor is providing their services to you as a PSC then they will be affected by IR35 rules. Contractors operating through an umbrella company will be out of scope - although it is worth checking rather than assuming it will be ok. While the crux of IR35 legislation sees responsibility for tax status deductions move to the client-side, there are several ways businesses may be affected.
At Empiric we are enabling clients to get ready now so there aren’t any surprises on the horizon. Our range of solutions provides private sector businesses with different cost-effective options to ensure that they will be fully IR35 compliant when the changes come into force on 6th April 2021.
When is a contractor Inside or Outside of IR35?
IR35 legislation now presents the question of designation for companies when liaising with contractors, namely do they want to consider a contractor as working Inside or Outside of the business.
IR35 Inside would imply
- A contractor is, in essence, the same as an employee
- The client is responsible for overseeing works
- Tax is deducted at source
- Pay is based on time and materials no matter how long work lasts and not on a PAYE basis
- A contractor is locked in, essentially removing the freedom to replace themselves or choose what works are completed
IR35 calculator - CEST tool
CEST can be used to determine the status of each assignment. CEST is not mandatory but according to HMRC it would stand by the decision given.
It’s important to use caution and care when deciding whether a contractor is Inside or Outside, and that’s one of the ways we help.
IR35 Outside would imply
- A contractor is, in essence, not an employee for works being carried out
- A contractor is set a specific project or deliverable and has the flexibility to deliver how they see fit
- A contractor is paid on time and materials as well as a fixed price, but the responsibility is one contractor to complete work on time, and they carry financial risk
- A contractor can source a replacement or increase resource as needed to complete the contract, as long as the client doesn’t foot the cost
If a contractor's determination is incorrect, under IR35 legislation the client could face the following penalties:
- The client could face fines of over 50% on top of the contractor's salary
- HMRC could also charge additional fines and interest on outstanding liabilities
- Going forward, fines could be backdated up to a maximum of 4 years back to April 2021
- Business performance could be affected due to a lack of resources if a contractor's position has not been defined and resourced
Our IR35 solutionsDiscover which of our IR35 solutions best meets your business needs
Will IR35 changes affect the contractor process?
IR35 rules should not cause any disruption to the flow of business. But defining contractor determination in advance is vital to ensure there are no surprises when IR35 changes come into effect. We can help by identifying the best solutions for:
IR35 dictates contractors are liable for any substitutions, not the client
“Standing over the shoulder” isn’t allowed. Clients simply pay contractors when work is done with no interruption
- Financial Liability
Contractors, when acting as a company and not your employee, take on the financial burden of works, even if they go on too long
- Mutuality of Obligation (MOO)
A clear endpoint is set so that once work is completed and paid for, the client or contractor cannot be expected to continue.
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Please get in touch with us today and we can work with you to provide a IR35 solution. Although smaller companies may find they’re exempt to the change, we do recommend for anyone running a company in the private sector to contact us now.