IR35 – Advice for Clients and Contractors
From 6th April 2020, clients (known as “End Users”) will be required to provide a Status Determination Statement (SDS), which provides evidence as to whether a contractor’s engagement falls inside or outside IR35. “Inside” requires a contractor to work via an umbrella company or directly with the client on PAYE. If the contractor falls “outside” they can still use their own limited company or PSC.
The new rules also stipulate that tax and NIC payments are no longer the sole responsibility of the contractor, but that liability could potentially fall on any party in the chain including the client and the “fee payer” (the party that holds the direct contractual relationship with the contractor, most often the recruitment agency). It is important to note that the SDS does not in itself remove liability for tax and NIC payments from the client or fee payer.
Whilst the range of factors determining whether a contractor is “inside” or “outside” IR35 aren’t changing, the new requirement to make a determination of IR35 status as well as the shift in potential liability should a contractor be caught inside IR35, means it is important that organisations understand and assess the risk to their business through the engagement of Ltd company / PSC contractors, and work proactively to minimise these risks.
How Hoggett Bowers are preparing
We are working with all our “end users” (clients) where the contractor’s engagement runs past February 2020 to help them determine, on a case by case basis, whether their contractor is “inside” or “outside” IR35. For this we have engaged the services of an expert contractor advisory firm who will provide all parties with an SDS. This will consist of an IR35 contract review and a working practices review to ensure these are aligned, with a full report provided, including any recommended changes. For those deemed “outside” IR35 this partner will also provide indemnity insurance protecting the client and the fee payer in the event of an HMRC investigation.
We are confident this provides Hoggett Bowers and our clients with a compliant, insurance backed solution which will allow us to continue to supply Ltd company day rate contractors to our clients with negligible risk, if deemed to be “outside IR35”.
What you need to do as a client
Medium and large-sized private sector clients will need to decide the employment status of a worker, and must do this for every contract agreed with an agency or worker. You will need to:
- Pass your determination (SDS) and the reasons for the determination to the worker and the person or organisation you contract with
- Make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid
- Have processes in place to deal with any disagreements that arise from your determination
- If you are also the fee-payer and the off-payroll working rules apply, you will need to deduct and pay tax and National Insurance Contributions to HMRC.
Smaller organisations are not affected by the IR35 ruling. A business will be small if it satisfies two or more of the following requirements and in that situation the status determination remains with the contractor*:
- It has an annual turnover not exceeding £10.2m
- It has a balance sheet total not more than £5.1m
- It has no more than 50 employees
* The definition of what is a ‘small business’ is taken from the Companies Act 2006 and will apply to limited companies, LLPs, unregistered companies and overseas companies.
Reach out to us for advice on the following:
- How to continue using day rate contractors compliantly, irrespective of IR35 status
- Hoggett Bowers processes for determining the IR35 status of contractors, individually and across our workforce
- How to ensure IR35 compliance of contractor working practices
- Direct contractors – dealing with the liability risk of using direct (non-agency) resource and potential claims of employment rights
- Recommended time frames for communication to ensure business readiness and reassurance for your contractor workforce
- Outcomes from the roll-out of IR35 changes in the public sector
Our advice for contractors
We advise all contractors to contact their agency, their end client and ideally a third party partner, who can audit your working practices independently. This should be performed by as soon as possible, to ensure your end client and recruitment agency (when involved) are taking the necessary steps to make well-informed status decisions.
As a contractor, if you suspect your engager will make risk-averse or inaccurate IR35 decisions, we urge you to seek a second opinion. By having your contract reviewed by an independent and unbiased expert, you will be in a stronger position to challenge and maybe in a stronger position to try and overturn an unfavourable assessment.
It’s important that contractors have a strong case for working outside of IR35. This matters even more now, given that from 6th April you will no longer be setting your own status. Therefore, we advise independent contractors to gather ‘evidence’ in the run-up to April, which highlights the service you believe to be genuine self-employment.
If you wish to discuss your next Contractor role, or have a Contractor recruitment need at your organisation, please get in touch with our Interim Practice Director, Rupert Dobson on 0207 964 9111.