IR35 – Are you complying with the recent changes to off-payroll working?

On 6 April 2021, the rules relating to off-payroll working changed. This will include independent contractors, those who are self-employed and some workers. HMRC has introduced these changes as a tool to determine genuine ‘contractor’ status, and to address issues where ‘disguised employees’ may be paying reduced tax and national insurance contributions.

If your worker provided services to a public sector client, a medium-sized private sector client, or a large-sized private sector client, the worker:

1. Should get an employment status determination from the client (including the reasons for such determination); and
2. Will be able to dispute any determination.

The responsibility has therefore shifted to the client to determine the employment status of a contractor.

If the worker is found to be an employee, the ‘deemed employer’ (usually the client to whom the contractor provides services) will be required to deduct tax and National Insurance contributions, and to pay those to the HMRC directly.

Is my worker an employee?

There is no statutory definition of an employee for tax purposes, meaning that the test is based on a mixture of law and the individual facts. In some circumstances, this will be very straightforward. In others, you may need to dig deeper.

There are three main tests to determine worker status:

1. Control – if the client decides where the work takes place, when they worker will work or how they carry out the work, this indicates that they may be operating as an employee and therefore within IR35. If the worker can decide how a contract is completed and works to their own schedule, this may be deemed to be outside IR35.
2. Mutuality of obligation – if the client is obliged to provide paid work, and a worker is obliged to accept the work, this may be considered mutuality of obligation, indicating a relationship of employer and employee. However, this test is ambiguous, and the individual facts will need to be considered.
3. Personal service – otherwise known as a ‘right of substitution’, this test focuses on whether a company has a right to replace the worker subject to a new appointment meeting reasonable criteria. If a client requires a specific individual to perform the work, this may indicate an employer/employee relationship.

What if my worker disagrees with the determination?

If you are the client, and the worker disagrees with your determination, the worker must:

1. Provide to the client the details of the determination that they disagree with, and their reasons for disagreeing; and
2. Keep copies of any records about the disagreement.

The Government guidance states that a disagreement can be raised until the last payment is made for the worker’s services.

The client will have 45 days from the date the disagreement was received to respond to the worker. The guidance states that, during that 45 day period, the entity paying the fees should continue to apply the rules that apply to the original determination.

After the 45 day period has expired, the client (in this case, the potential employer) must tell the worker either that the employment status determination has not changed, or, if it has changed, give the status determination to the worker and confirm on which date this is valid from.

Whether a worker is an employee can be a complex issue. If you have any doubts about the position regarding the workers  employed by your business, please call us for advice.

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This article aims to supply general information, but it is not intended to constitute advice. Every effort is made to ensure that the law referred to is correct at the date of publication and to avoid any statement which may mislead. However, no duty of care is assumed to any person and no liability is accepted for any omission or inaccuracy. Always seek advice specific to your own circumstances.  Fraser Dawbarns LLP are always happy to provide such advice.