The recruitment company you pay (termed the ‘fee payer’ in the legislation) must be informed of your status decision. The agency is then
responsible for applying any applicable taxes from the fees you pay them. If they do not, they are liable for unpaid taxes, HMRC fines etc.
If you, the client do not adhered to certain rules, you will take on the responsibilities of the Fee Payer aka liable for taxes, HMRC fines etc.
To ensure this doesn’t happen the legislation asks several things of you:
1. You must use reasonable care in your status assessments. There is little guidance from HMRC on what they consider is ‘reasonable care’. We recommend you assess each role on a case by case basis, keep records and document your decision-making processes.
2. You must inform the agency of the status decision before the start of the assignment
(although we would prefer the decision sooner for practical reason)
3. Answer any questions from the agency about the decision within a set timescale (timescales not yet confirmed)
From April 2020 the worker will have no liability for unpaid taxes.
The worker is not automatically entitled to employment rights because they fall inside of IR35, they do not become an employee of yours,
the only change is the amount of taxes that apply to the fees.
The changes will not be applied retrospectively.
The exception:
Small organisations as defined in the Companies Act 2006 are except from this change in legislation and will not have to make IR35 assessments on contract roles:
Companies Act definition of “qualifying as small”
The qualifying conditions are met by a company in a year in which it satisfies two or more of the following requirements —
1 Annual Turnover Not more than £10.2 million
2 Balance sheet total Not more than £5.1 million
How this affects you?
Just as you do now, you will need to consider each new role in terms of how the work will be managed, the deliverables, role description etc.
However, you will need to measure these factors against the IR35 rules.
HMRC have produced a tool to use for employment status assessments. This is a set of multiple choice questions (a link to tool is in the references section below). The tool has been heavily criticised and is currently undergoing improvements by HMRC.
As such we would not recommend you rely solely on the tool but also consider case law.
It is very difficult with any level of certainty to produce an ‘outside IR35’ status decision, HMRC themselves struggle, having lost many cases in court.
However, there are some prevailing factors to consider:
| Factor |
Application |
| Mutuality of obligation (MOO) |
There should be no obligation on the client to provide work and
equally no obligation of the worker to accept any work offered by the client.
All Computappoint PSC agreements are non-MOO agreements |
Personal Service/
Right of substitution |
Any worker should be easily substituted for another suitable worker if required. They should not be providing a ‘personal service’.
For example, you book a boiler service with a plumbing company, you are told Bob is to be the visiting engineer, but on the scheduled day Bob is unable to attend, so the company sends Tracey instead. Bob has been substituted for Tracey; therefore, this would not be classed as providing a personal service.
All Computappoint PSC agreements contain a right to substitute clause. |
| Financial liabilities |
As the worker/PSC is in business in their own right, there should be financial risks; risking their own money to providing services through a business. For example, are they under warranty to correct errors, do they hold professional indemnity insurance, are they paying for their own training and/or buy assets to do the job?
Computappoint agreements include warranty’s and a workers first payment through us is subject to providing a copy of their professional indemnity insurance. |
|
BYOD
|
Is the worker able to use their own equipment and devices to provide the services? This will obviously be considered under the circumstances, as some situations particularly in IT will require workers to use the client’s equipment rather than their own. |
| Control |
The worker should be able to decide what, when, where and how to
perform the services to the client. The worker should know how to do their job from day one and will not require training or instruction on their skill set. |
| Employee benefits |
A worker must stay independent from the client’s employees. Workers should not be invited to employee social events, such as the Christmas party. They should not be entitled to employee benefits and discounts. |
What should you be doing now?
• Talk to your recruitment suppliers about the measures they are implementing and what steps they are taking to be compliant.
• Familiarised yourself with the legislation and case laws (useful links provided below).
• Practice using the HMRC CEST tool https://www.tax.service.gov.uk/check-employment-status-for-tax/setup Look at other assessment tools such as the free, extensive test produced by Contractor Calculator https://www.ir35testing.co.uk/TakeTheTest
• Talk to your legal team about liabilities and internal processes or seek advice from a specialised service provider.
• The rules will apply to current workers if they are still on site in Apr 2020, so consider how they are managed and if this needs to be
adjusted?
• Talk to Computappoint about how we can assist you and the best way we can work together for an easy transition in April 2020.
Useful References
Link to the legislation Income Tax (Earnings and Pensions) Act 2003, Chapter 8
https://www.legislation.gov.uk/ukpga/2003/1/part/2/chapter/8?view=plain
Government page on the IR35 changes
https://www.gov.uk/government/consultations/off-payroll-working-in-the-private-sector
Link to the consultancy paper published March 2019
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/783409/Off-payroll_working_rules_from_April_2020.pdf
All information is provided for information purposes only. Every effort is made to ensure that all information given in this document is accurate, but no responsibility or liability can be accepted by any member of Computappoint Limited for any errors or for any loss from use of this publication or any of the information or data contained herein.
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