IR35 will be coming into force on the 6th April 2021, but are you ready? We’ve put together a quick guide to help you understand what is changing, how you can assess your relationship with self-employed workers and what options you have as an employer.
If you rely upon self-employed workers, labour-only subcontractors, or an independent consultant then this is for you.
What is IR35?
A set of tax regulations affecting self-employed workers. It’s been around for almost 21 years, but the Government now believe it needs to be enforced to ensure the right levels of tax are being collected from those who don’t feature ‘on payroll’, but often act like they do.
Will it affect me?
All medium and large businesses will need to undertake a ‘Complete Employment Status for Tax’ test, CEST for short, for all their self-employed workers if your business meets two of these criteria:
- An annual turnover of £10.2 million or more
- A positive value of £5.4 million on your balance sheet
- 50 or more employees.
If the Company does not meet these criteria and still engages self-employed workers, then you must insist that the self-employed worker does the Status Test and provides the outcome for consideration.
What should I do?
Take the CEST assessment by HMRC which helps businesses to work out if a worker falls inside or outside the scope of IR35. The assessment will tell you if a worker is:
- Off payroll
- On payroll
Off payroll indicates that you can still continue sub-contracting.
On payroll indicates that the assessed worker should be classed as an employee.
If undetermined, then further information or clarity may be required on the CEST, so run the assessment again. This is a very unusual outcome.
Once you’ve obtained your results, you must keep these records safe for 6 years. This is the time period that HMRC could review your decision making when it comes to self-employed workers. You can also add notes to the assessment to justify any of the information added to the CEST that may be challenged by HMRC in the future.
If you disagree with your CEST result, there is a 45 day period to refer any disagreement with the result to HMRC. However, they are not compelled to assess or amend any decisions from the assessment.
These changes formed part of the Government’s Good Work Plan and were due to be rolled out in April 2020, but due to the pandemic, they decided to delay this particular change till this year.
What happens if I don’t participate?
Failure to take these changes on board could result in an investigation into unpaid tax, which could send companies under, render business owners bankrupt or at worst result in prison sentences. This is serious and must be considered if you use self-employed workers to supplement your workforce.
There is a plethora of reference in employment case law advising that ‘If it walks like a duck and quacks like a duck, it’s probably a duck’, and I don’t think any words can summarise this situation between IR35 and self-employed workers any better.
If you need support with your IR35 arrangements, call us on 03456 144122.