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IR35 off-payroll working legislation: Frequently Asked Questions

on Tue, 17/11/2020 – 09:27
 IR35 - Frequently Asked Questions

what is off-payroll working legislation?

Currently in the private sector contractors who operate via their own personal service company make their own decision in respect of whether they are inside or outside of IR35 tax legislation.

Those who decide they are outside IR35 believe they are effectively self-employed and in control of their work. They pay themselves dividends from the assignment income and therefore save significant amounts in tax and national insurance. Those inside IR35 have most of the assignment income subject to PAYE taxes.

From April 2021 hirers will be responsible for making the IR35 employment status decision and will therefore be liable for any wrong status decisions.

how do I ascertain whether an assignment is outside IR35?

After undertaking a worker audit, the first phase of any review is to look at the contract and working practices to see whether they are akin to a self-employed worker or an employee.

It would be advisable to then see what decision the HMRC online tool, CEST, provides on an assignment. HMRC guidance says that if the information was input correctly, they will stand behind the decision made by the tool.

There are independent reviews sometimes backed by insurance policies. these need to be looked at carefully to understand the supplier’s motivation behind the review and whether the insurance policy is effective and does not bring you into the managed service company legislation, which has very severe consequences for the company and its directors.

what are your options for your assignment caught by IR35?

Essentially the worker needs to be engaged via a PAYE solution. Typically this takes the form of an engagement by an umbrella company or PEO.

In certain instances, the worker wants to continue using their personal service company even though they are caught by IR35. If you as the hirer allows this, you will need an intermediary to act as the IR35 fee payer deducting the appropriate amount of tax and national insurance before paying the net amount to the worker’s limited company. It is very important to ensure you use a credible supplier so that liability does not full back on you the hirer.

who is ultimately responsible for the HMRC financial risk now?

Ultimately the hirer is always responsible for the HMRC financial risk, including penalties and interest. This also comes with reputational risk.

what can we learn from public sector rollout?

Off payroll working legislation was brought into the public sector in April 2018. The vast majority of assignments were deemed by the public bodies to be caught by IR35 and therefore most workers began to pay tax under PAYE. HMRC, unsurprisingly, deemed the rollout a huge success.