Back in the autumn of 2022, it was announced that IR35, the off-payroll working rules in the public and private sectors would be abolished from April 2023. However, that was soon reversed by the next Chancellor and so the guidance from HMRC seems to be “as you were” although they have taken the opportunity to update their guidance in March.
IR35 has been in the headlines in recent weeks, with both Gary Lineker and Eamonn Holmes the subject of HMRC court action, although with differing outcomes. What this shows is that HMRC will still pursue off-payroll working cases and there can be no room for complacency on the part of either the worker or the employer. It would be a good idea for businesses who operate an off-payroll working system to fully familiarise themselves with what HMRC has most recently said, and if you are considering such an arrangement, you need to go into it with your eyes open.
What is IR35?
An off-payroll worker is a contractor that provides their services to a client through their own limited company or another intermediary, known as their Personal Services Company (PSC). IR35 are the rules that make sure off-payroll workers pay the correct National Insurance contributions.
Inside or outside IR35
Work that is deemed outside IR35 is work done by an employee of a company.
Work that is deemed inside IR35 is work done by a self-employed contractor through a PSC. It is work that is paid outside normal payroll processes (off-payroll).
Responsibilities of businesses
Large and medium-size businesses that are a contractor’s client are responsible for:
- deciding if a contractor is inside or outside IR35
- recording and sharing this decision with the fee-payer through a tax determination statement
The fee-payer is a person who pays the contractor. This could be the contractor themselves or a PSC.
Small businesses do not have to decide a contractor’s status if at least 2 of the following conditions apply:
- the business has an annual turnover of less than £10.2 million
- the business has a balance sheet total of less than £5.1 million
- the business employs fewer than 50 people
In these cases, responsibility for deciding the employment status will usually sit with the contactor themselves or their personal services company.
Assessing a contractor’s status
Where a company is responsible for checking the tax status of a contractor, they must consider each case individually, rather than making ‘blanket decisions’. This is because companies have a duty to take ‘reasonable care’ when determining whether off-payroll rules apply. If you do not do this, HMRC can make you responsible for deducting income tax and National Insurance, even if this would not otherwise be the case.
Status determination statement
Once you’ve decided whether or not a contactor is an off-payroll worker, you must record your decision in a status determination statement.
This is a short written statement that outlines:
- the contractor’s off-payroll working status
- how you reached a decision about this status
You do not have to lay out this statement in a specific way or use a pre-written form, and it can be in an email rather than an electronic document.
Sharing the status determination statement
The statement must be sent to the fee-payer, which will either be the contractor themselves or their personal services company.
Where the statement says the contractor is an off-payroll worker (inside IR35), the fee payer will know they need to:
- deduct the correct amount of income tax and National Insurance from the contractor’s fees;
- pay this to HMRC.
To find out more details about IR35 and the responsibilities it places on both employers, intermediaries and contractors, check out this link: