Off Payroll Working ('IR35' – Intermediaries Legislation) in the Private Sector
As an existing or prospective client of Andy Stokes Consulting Limited (ASC) then hopefully you will be aware of new legislation which will come into effect in April 2020 at the start of the 2020/21 Tax Year. This has a potential impact of the way that you engage with ASC, as ASC is considered by HMRC to be a Personal Services Company (PSC). Note that the legislation will affect any engagements already in place with ASC at the start of the next tax year.
The original 'IR35' Intermediaries Legislation aimed to prevent tax avoidance through what the government calls ‘disguised employment’. ‘Disguised employment’ happens when businesses hire self-employed or PSC workers on an ongoing or rolling basis, when they really should be hiring employees on a full time basis. The 'benefit' to companies of doing this were the avoidance of paying Employers National Insurance (NI) contributions, and the legislation seeks to curtail such avoidance.
Under this legislation, any contract or engagement between a client and a PSC has to be considered and a determination made as to whether the contract falls under the legislation – if it does then the client will be required to deduct and remit Tax and National Insurance payments to HMRC in the same way as you would do so for your 'direct' employees. Previously this status has been determined by the PSC, in this case ASC.
Essentially the forthcoming legislation changes (which are largely based on the changes applied to the Public sector some two years ago) state that as a private UK based medium to large organisation you will be responsible for determining the on/off ('IR35' Intermediaries Legislation) employment status of 'non-employees' and therefore if you should deduct and remit PAYE and NI. It should be noted that you will be also responsible for notifying the PSC (ASC) of the determination outcome, and that such determinations may be challenged via a process you will be legally obliged to put in place. It should also be noted that even if there is an 'inside IR35' determination there is no statutory obligation for you to pay Holiday or Sick Pay to a 'non-employee', although these may be subject to Employment Tribunal rulings.
Full details of the Draft Legislation can be found here:
The way that the on/off payroll status (IR35) determination is carried out is complex (and somewhat controversial) and a full guide to it can be found here - although this link may not yet reflect the changes coming into effect in April 2020. If you are unfamiliar with these regulations we strongly recommend that you familiarise yourselves with them prior to making any determination(s).
Should ASC commence any work for you as a client during any relevant period as defined above, then any work undertaken and invoiced to you prior to you confirming a determination status will be treated as though the determination is outside the scope of IR35; therefore appropriate Taxation/NI will be initially be accounted for as PAYE or Corporation Tax via ASC or personal Dividend Tax levied on the appropriate ASC employee. Such an assumption is however reversible dependant on your determination.
The following page contains some guidance notes from ASC which you may find useful when making a determination outcome with respect to engagement with ASC.
Obviously, ASC cannot advise you what your determination should be with respect to any engagement with ASC, but the following information may be useful to whoever carries out such determinations on behalf of your organisation.
ASC has always determined itself to be 'outside' of IR35 due mainly to the following factors:
ASC is in business 'of its own account' as a registered company.
It has been operating for over 5 years as an on-going concern, working with dozens of different clients both inside and outside the UK.
It engages with multiple clients concurrently.
The work it undertakes is 'project' rather than 'ongoing role' based.
It invests in ongoing marketing and other business investment activities.
Whilst there is delivery and payment obligation between ASC and its clients in respect of engagements, we do not consider this to be an ongoing 'Mutuality of Obligation' in the sense that you are in no way obliged to provide ASC with continual work engagements on an ongoing basis beyond any agreed project scope(s) *.
Whilst we expect to agree with and to comply with your high level Policies and Practices regarding Non-Disclosure, Working Methodologies, Security and other such general items, we do not consider this to be 'Supervision, Direction and Control' as applied to IR35 . We believe that as you engage us for our unique experience and knowledge then day to day such items are mutually agreed between ASC and an appropriate client representative, rather than being dictated solely by the client *.
With respect to 'Substitution' we believe that as you engage us for our unique experience and knowledge, and that ASC is a 'sole employee' PSC, then the acceptance of substitutes by yourselves is highly unlikely during a project engagement, and as such then this is not a true indicator of on/off payroll status *.
With respect to ASCs use of your equipment during project engagements, we regard this as an inevitable consequence of the fact that we will be working directly upon your IT systems, and as such this is not a true indicator of on/off payroll status *.
To assist with on/off payroll determinations, then HMRC provide an on-line Check Employment Status Tool (CEST).
CEST determinations are indicative and non-binding, and ASC is of the opinion that the CEST tool can be highly likely to provide false positive (inside IR35) status determination results due to the questions it uses in respect of the factors highlighted by asterisks (*) above and the way these factors apply in reality to engagements with ASC.
ASC therefore strongly recommends that you make your own determinations rather than rely on CEST, and that such determinations should strongly consider 'project' vs. 'ongoing role' factors.
Thanks for reading …
… should you wish to discuss any aspects of the legislative changes and the way they apply to engagement with ASC, or if you would like to discuss making a determination regarding ASC further, then we will of course happy to discuss these with you.