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IR35: Are you up to speed?

Sponsored feature | Caroline Yarrow, BDB Pitmans

Caroline Yarrow, BDB Pitmans (31407295)
Caroline Yarrow, BDB Pitmans (31407295)

IR35 was introduced in 2000 to reduce tax avoidance by contractors supplying services through limited companies for tax efficiency reasons where those contractors would, but for the limited company, have been viewed as employees of the end-user for tax purposes.

Originally, it was for contractors to assess whether they were caught by IR35 but this changed for public sector organisations in 2017, with the onus being put on the organisation to assess whether contractors operating through limited companies were genuinely self-employed.

If self-employed status cannot be shown, all payments made to the limited company should be taxed as employment income and appropriate payroll arrangements put in place to ensure that this is the case.

From 6 April 2020, the burden of determining employment or self-employment status from a HMRC perspective, will also fall on a private sector employer where they are a medium or large organisation. An organisation is medium or large if it meets two of the three following criteria:

  • More than 50 employees;
  • Annual turnover of over £10.2 million; and
  • Balance sheet total of over £5.1 million.

An employer must assess a contractor’s status and communicate this to them through a status determination statement which sets out whether the individual in question would be regarded as an employee of the end-user for income tax purposes if the services were provided by the individual directly to the employer, rather than through a limited company, and the reasons why.

A number of online tools can help with this judgment exercise and HMRC has a CEST (Check Employment Status for Tax) tool which can assist.

BDB Pitmans is working with clients to prepare for the IR35 changes, including:

  • Assessing whether they are in scope;
  • Assessing current arrangements with contractors and identifying those operating through limited companies;
  • Determining whether IR35 applies to any contracts which extend beyond April 2020;
  • Talking to contractors about whether IR35 applies to their role;
  • Putting processes in place to determine whether IR35 applies to contractors, including who in the organisation should determine the status of a contractor;
  • Holding training sessions to ensure staff know which contractors IR35 applies to; and
  • Assessing the financial impact of IR35 and considering whether changes or updates need to be made to contracts and payments.

For more information, please get in touch.

Caroline Yarrow is a partner in the employment team advising corporate and individual clients on contentious and non-contentious employment issues.

Contact carolineyarrow@bdbpitmans.com or visit bdbpitmans.com.

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