But what does that mean for businesses? Firstly, it is important to remember that these changes will only affect ‘medium’ to ‘large’ businesses. That means that you must satisfy at least two of the following: an annual turn-over of more than £10.2m; an asset balance sheet of more than £5.1m; and/or more than 50 employees.
For those medium to large businesses this impacts, it means that if they are the hiring business/end user they will now be responsible for determining the tax status of any contractors engaged through an intermediary. Where the contractor is deemed to be employed for tax purposes, HMRC will seek recovery of tax and NI from the end user i.e. your business, in the first instance.
So for example, if your business hires a contractor to work as self-employed through a limited company, then that limited company is an ‘intermediary’ between your business and the contractor and would trigger the requirements of IR35.
Under the new rules, the burden will shift from the limited company to the hiring business to assess the relationship (known as a Status Determination). Where the contractor is found to be a ‘disguised employee’, the hiring business must ensure that PAYE and NIC are deductible when paying the contractor’s limited company going forward.
If your organisation fails to conduct a Status Determination or gets it wrong then HMRC can hit you with penalties which could include reviewing previous payments and requiring you to pay PAYE tax and NIC going back 20 years!
What should businesses be doing?
Review your self-employed contractors who contract with you through their intermediary company and carry out a Status Determination (either utilising the Government’s Check Employment Status Test (CEST), through your own HR team or with outside help) to decide the individual’s status. Once you have the outcome, provide this to the intermediary, explaining the reasons behind the decision. You will also need to consider an appeal process for the contractor to appeal the decision. We consider that this would be similar to a disciplinary appeal process.
Consider the different ways that you could interact with your self-employed contractors after the IR35 changes. This may include but is not limited to:
- Changing the way your organisation engages with the self-employed contractor, for example, would making a few changes ensure that the contractor is found to be genuinely self-employed and be a win-win for both parties
- If it fits with your requirements, consider bringing the self-employed contractors on as employees/workers
- Where the self-employed contractor is found to be an ‘employee’, re-negotiating the relationship between your organisation and the intermediary to include scope for additional financial liabilities to HMRC
- Having a relationship through an agency or umbrella company. This means that the employment of the self-employed contractor sits with that umbrella company, as the “employer” rather than your organisation.