IR35 is the term that can strike fear into contractors and clients alike. So to help you make sure you’re compliant, here’s a simple five step guide to get you started.
If you’re unsure whether you or your workers are compliant, contact our team and we’ll be happy to give you a few more pointers.
Step 1. Time to Get Your House in Order
The IR35 deadline is long passed, as has the 6-month window where HMRC advised they would take a ‘soft-touch approach’. As such, it’s no longer enough to say you’re working towards compliance, you need to have your approach in place now. IR35 legislation has been in place since 2000 – the major change in 2021, was the shift in liability for establishing your supplier’s tax status from your supplier to you. There is a lot of guidance on the HMRC website, and so this is a good starting point to check that you and your suppliers have the correct status.
Step 2: Work how the regulations cover your company
Does your company have:
- Turnover in excess of £10.2M?
- A balance sheet of £5.1M per year?
- More than 50 employees?
If you answer “no” to two of more, the legislation will not apply. (There are rules around groups of companies and common ownership – best to check with HMRC to be sure.)
Step 3: Work out how the legislation applies to your suppliers.
Are your suppliers actually PSCs (Personal Service Companies)? If they are not, the changes will not apply… A PSC is defined as a Limited Company, which provides the services of an individual (or small group) and is owned by that individual. This is therefore likely to be professionals working for your business, but not anyone who is self-employed or sub-contractors providing labour or work on a price. However, it does apply to a PSC working for you via an agency or other intermediary.
Step 4: Engage with your suppliers and carry out a due diligence process
Do not apply a “blanket ban” on PSCs. This is contrary to the HMRC guidance, and also deprives your organisation of cost efficient and valuable resource. There are hundreds of companies offering compliance solutions, some free and some paid for, but “buyer beware” as some of these will just be after your cash and their assurances are fundamentally flawed.
We would suggest initially liaising with your suppliers, and working out if they are inside or outside IR35 – does the legislation apply or not? There is a tool on the HMRC website (CEST) which is a good place to start, but fundamentally you are asking if the supplier “looks like” an employee, or treated like one, and therefore payments should be subject to NI and Tax.
Factors to consider:
- Do they hold insurances?
- Are they subject to Supervision, Direction Or Control?Do they provide a personal service?
- Could they send someone else to carry out the works
- Once you have done this, you are required to issue a “Status Determination Statement” (SDS) to the PSC (or to the Agency) to state whether they are “inside” or “outside” IR35, and therefore whether Tax and NI will be deducted from payments made.
Step 5: Evaluate the risk to your company and take steps to mitigate the risk
To be clear, there is only a financial risk to your company if:
- HMRC carry out an IR35 inspection; AND,
- You have done no due diligence on your suppliers; AND
- HMRC establish that your supplier is “inside” IR35; AND
- HMRC can prove there is a tax loss…
Therefore, if you have carried out due diligence, kept evidence and engaged with your suppliers, the risk to your company, although present, is small. There are also options to migrate any PSCs who are “inside” IR35 to other engagement methods, including PAYE or Self-Employment, providing the required processes are followed.
If you have any questions about IR35 and how it affects you, call our team who will be happy to help