Key talking points: Preparing for the IR35 legislation change
With the upcoming changes to IR35 on the horizon, we have been inundated with questions on how this will affect each area of the supply chain and what actions need to be taken.
To give further clarity and answer some of the recurring questions, we have pulled together key talking points and provided the answers.
Q: What is HMRC’s definition of a PSC?
A: For the off-payroll working rules to apply, an intermediary can be a limited company, a partnership or an individual. Page ESM10003 of the Employment Status Manual guidance on GOV.UK goes into more detail about how a limited company or PSC may be within the scope of the rules: ESM10003 – Employment Status Manual – HMRC internal manual – GOV.UK.
Q: What is the difference between a “deemed employer or employee” or a normal employer/employee that would be on a company’s payroll?
A: A payment to a deemed employee would only be subject to PAYE/NIC and apprenticeship levy, if applicable. You can find more detailed guidance here https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm10019 and https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm10020.
Q: What is the situation if a contractor is outside the UK?
A: The normal residency rules should be followed to decide whether PAYE/NIC is due. Guidance can be found here https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm10025 with some examples here https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm10026
Q: If a UK resident is employed by their PSC who is then contracted to work overseas, how do you enforce the IR35 rules?
A: UK resident workers are subject to tax wherever in the world that income arises. If the overseas client does not meet its responsibilities it will, as a consequence, be liable for tax and NICs where the rules apply, and HMRC will pursue this debt through the UK permanent establishment.
Q: When engaging an off-payroll worker through an agency can you accept confirmation from the agency that the worker is already payrolled and paying PAYE/NIC (if they are a PSC), or does this need to be confirmed by the off- payroll worker themselves?
A: You should satisfy yourself that the worker is already payrolled, this may include receiving written confirmation from the agency which if received, you may want to retain for audit purposes. There is no requirement to obtain this confirmation from the worker themselves, although you may do this if you wish.
Q: What if the company and service provider can’t come to a decision as to who is the end client is?
A: Clients and service providers should agree between themselves who the end client is, based on the facts. If our compliance team looked into a client’s approach to OPW, they will look at any services which are contracted out to check they have been dealt with correctly.
Q: If a subcontractor employs staff other than themselves or other directors/shareholders do I need to provide a SDS to the company for IR35 purposes? If not, do I need to keep a record that the subcontractor has been considered and no further action is required?
A: If the staff member is already subject to tax and NIC an SDS wouldn’t be required. You should ask the contractor to confirm and keep a record of their reply. If you get no response you should assume tax and NIC is not being deducted and issue an SDS.
Q: What is the difference between a contractor (working through an intermediary and being subject to OPW rules) and a contractor who is a sole trader (determined to have characteristics of an employee) and has PAYE and NI deducted?
A: The key difference is that a sole trader is directly engaged by the client, whereas the intermediary is engaged by the client. Where an intermediary is engaged, additional criteria are considered such as whether the client is large or medium-sized. In both situations, the client must determine the employment status of the worker.
Q: What rules apply to sole traders and who holds that responsibility?
A: The client will still have to consider the employment status in the same way they do at the moment for any directly engaged contractors who provide their services as a sole trader. The OPW rules don’t alter any tests required for determining a contractor’s status for directly engaged sole traders
Q: If a contactor works through an intermediary but it’s not a registered Ltd company do businesses still need to consider IR35 or are they classed as a sole trader?
A: An intermediary could take the form of a Personal Service Company (Limited Company) but it may also take the form of a partnership, sole trader or managed service company. Further information available at https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm10003
There is a lot to get your head around when it comes to IR35. If you are finding you have more questions than answers and need further support, get in touch with Brookson.