Don’t fall foul of IR35 rules
News reports indicate that the Government owes HMRC £263m in unpaid taxes due to non-compliance with IR35 rules. The article in the Telegraph goes on to say that public sector departments owed the back taxes for self-employed worker that were incorrectly assessed for the tax year 2020-2021.
This is a timely reminder for all firms working with contractors and freelancers off-payroll to ensure that their tax status is determined correctly.
IR35 off-payroll working rules
Off-Payroll Working Rules came into effect from 6 April 2021. It means that all public authorities and medium and large sized firms are now responsible for deciding the employment status of workers/contractors.
IR35 (Inland Revenue 35), also referred to as Off-Payroll Working Rules, applies if a worker / contractor provides services via their own limited company or another type of intermediary which could be:
- a partnership
- a personal service company
- an individual
It means that those employed as a contractor pay the same tax and National Insurance contributions (NIC) as direct employees.
The client (public authorities and medium and large sized firms) who employees the worker/contractor is responsible for determining if the off-payroll working rules apply. It seems, that in this case, workers were wrongly assessed as self-employed which has led to the government owing back taxes.
What companies need to assess whether workers are self-employed?
All public sector clients and private sector companies that meet 2 or more of the following conditions need to assess if workers are self-employed or not:
- an annual turnover of more than £10.2 million
- a balance sheet total of more than £5.1 million
- have more than 50 employees
A simplified test also applies to some clients. Rules apply if you have an annual turnover of more than £10.2 million and are not:
- a company
- a limited liability partnership
- an unregistered company
- an overseas company
There are also rules which cover connected and associated companies. If the parent company of a group is medium or large, their subsidiaries will also have to apply the off-payroll working rules.
Companies determine the employment status of each worker that operates through their own intermediary, even if this is through an agency.
The companies should use a Status Determination Statement (SDS) which is then Passed To The Worker/Contractor Or Agency You Contract With. The SDS can be issued in advance of 6 April 2021 if relevant.
Workers are required to keep records of these status determinations, including the reasons for the determination and fees paid.
Accountants Oxted
Our team of accountants based in Oxted offer an advisory service and can help you manage the off-payroll rules and regulations ensuring that no financial penalties are incurred to your business. Get In Touch.