IR35 guide for hirers
Private hirer actions
Private sector businesses will from April 2020 be responsible for determining the IR35 status of the contractors whose services they engage, either direct or through an agency. The business is then responsible for sharing its decision with the “fee payer” e.g. the agency. If the hirer has assessed the contractor as ‘inside IR35’, the agency must pay the contractor net of deductions for tax and NI. The fundamental principles of how IR35 status is assessed won’t change, established case law will continue to apply.
Small business exemptions
These IR35 private sector changes will not apply to small hirers. Contractors who do provide services to these small businesses will continue to be responsible for deciding their own IR35 status on a contract by contract basis.
For the small company exemption to apply two of the following criteria must be met:
1. Annual turnover of not more than £10.2m,
2. Balance sheet of no more than £5.1m,
3. No more than 50 staff.
Passing status decisions through the supply chain
Hirers will have to pass its IR35 decision to the contractor as well as the agency. Where a supply chain is in place, all parties must pass on the hirer’s decision.
Check Employment Status for Tax tool (CEST)
The hirer will have to understand the IR35 rules and use an appropriate tool to reach its decision. The Government’s online CEST tool is one possible means of carrying out an assessment, but it has been criticised and is likely to be amended. Alternatively, hirers may wish to use professional assessors.
Firstly, if the ‘fee-payer’ is off-shore, the responsibility to deduct tax and NI moves up the supply chain to the next UK-based entity. Second, it is proposed that liability should initially rest with the party that has failed to fulfil its obligations (such as making an assessment or passing on the results of an assessment) until such time as it meets its obligations, at which point liability moves down the chain. However, if HMRC cannot collect tax due from a party (for example, if the agency is insolvent), the proposal is that liability moves back up the chain. The hirer will be liable if it fails to take reasonable care when making its assessment. It’s not clear what this means in practice.
A contractor or an agency will have the right to challenge a hirer’s IR35 assessment, but there is no independent appeals process.
Consequences of getting assessments wrong
Although the legislation does not define what is meant by ‘reasonable care’, it will be vitally important that hirers are able to demonstrate that they made carefully considered assessments, based where appropriate on.
What should hirer’s be doing now?
Hirers need to set aside time to evaluate all contractors currently within the business, whether direct or through an agency, and determine whether these contractors fall inside or outside of IR35.