IR35 Guidance & Advice

The IR35 reform comes in to force on 6th April 2020. We have a range of solutions and expert advice to help your businesses navigate the new legislation and ensure all of your current and future contractors are compliant with it.

How Talentedge can help you with IR35

We have fully compliant options for any existing contractors you have with us. These are via:

  • Audited umbrella partnerships

  • Our own PAYE

  • Payment of limited companies

We can also correctly process any of your other contractors (that are currently direct or through other sources) through the above methods. This means you:

  • Have peace of mind that the tax treatment properly reflects the SDS (see below)

  • Avoid paying the contractor directly

  • Keep the individual off your payroll and further away from your own employee status

  • Keep headcount down

  • Keep flexibility of workforce

We have partnered with a tax specialist who can:

  • Advise on unclear determinations

  • Provide insurance to back up contracts and cover the cost of legal defence

  • Provide insurance to cover tax liability in the event that HMRC challenges an SDS

For more information on how we can help you with IR35 compliance for new or existing contractors contact Simon Samuel at simon.samuel@talentedge.co.uk

Our Guide to IR35

Who is responsible?

HMRC has deemed that the end client (the business who the services are delivered to) is responsible for determining whether a contractor role sits inside or outside IR35 and therefore needs to make a Status Determination Statement (SDS) for every contract role/service.

What does Inside or Outside IR35 mean?

Inside IR35 means the contractor is effectively an employee and therefore Income tax and National Insurance needs to be deducted at source (by whoever pays the contractor). There is also the additional cost of Employers National Insurance. Outside IR35 means the contractor is providing a service outside of an employee relationship. The Contractor remains responsible for their own Income Tax and National Insurance liability and can provide these services through their own limited company.

Who does it apply to?

The reform applies to all medium and large companies. Small companies are exempt.

What constitutes a “Small Company”?

To be deemed a small company, businesses (including any subsidiaries and/or parent companies) must qualify for 2 of the following 3 criteria:

  • Annual Turnover no more than £10.2m

  • Balance Sheet total no more than £5.1m

  • Less than 50 employees

Status Determination Tools

The quickest and easiest solution to determining the status of a contractor is to speak to us about the role and working practices of the contractor so we can properly determine whether the contractor is inside or outside of IR35. There are also many 3rd party companies available to assist with making determinations

Key Areas in a Determination

There are a number of key elements in determining whether a contractor is inside or outside IR35. These cannot be considered in isolation as it’s the overall scenario that is taken into account. For example just because substitutes aren’t allowed in a contract, it doesn’t mean that the relationship is inside IR35, particularly if other factors point towards a non employee relationship.

Substitute

Can the contractor provide a substitute and in which circumstances? This is not necessarily a simple yes or no. For example, it may be acceptable to provide a substitute with the end client’s sign off or a substitute could be at the total discretion of the contractor.

Control

Who determines how, where and when the work is carried out? This area covers a range of working practices. For example, giving a contractor the autonomy to complete work within flexible hours (within reason i.e. weekly number of hours) and in a way they deem will bring results, would be evidence that they are in control of their own work. Checking the quality of the work completed would not constitute control as the client has the right to check the quality of work completed regardless of whether the contractor sits inside or outside IR35. However stipulating set times of work and supervising work closely would be evidence of end client control

Mutuality of Obligation

If the end client is obliged to provide work and the contractor is obliged to complete the work this would demonstrate a mutuality of obligation similar to an employee, employer relationship. If the client does not provide a guarantee of ongoing work it will be much more difficult to establish that a mutual obligation exists and therefore the relationship is more likely to be deemed outside IR35 on this particular measure.

Financial Risk

Does the contractor bear any financial risk and to what level? The level to which a contractor can demonstrate that they are taking financial risk – ranging from financial penalties within a contract to simply paying for their own training, their own insurances –impacts how the relationship is deemed.  An increased breadth and level of financial risk assumed by the contractor increases the probability that the relationship is outside IR35.

Contract

It is important to note that any contract wording should reflect the anticipated reality of the relationship; a contract would not be looked at in isolation by HMRC should they have a query. It is important that if a contractor relationship changes at any point (for example the work/ services change), a new contract should be drawn-up.

Effect of Determination

Role is deemed inside IR35
A contractor can work through a compliant umbrella company, PAYE through an agency (most agencies don’t provide this option – Talentedge do) or PAYE through the end client. Many end clients will want to avoid this last option due to the link to employer status.

Role is deemed outside IR35
A contractor can work through a limited company.

For more information on IR35 you can contact Simon Samuel at simon.samuel@talentedge.co.uk