IR35: Be prepared for April 2021

04/01/2021

With the 6th of April 2021 fast approaching ...we are helping our clients to prepare for the new IR35 legislation.

IC Resources has forged partnerships with specialist solicitors and insurance companies in order to provide a seamless, risk-free contract service to our clients.

Whether you’re a company of 3 or 3000 and need to manage 1 or 100 contractors, we will manage the full process with ease and efficiency, without risk of costly government intervention. This new service is COMPLETELY FREE

If you manage IR35 professionally, you might already be preparing for the legislation changes which are coming into effect in April 2021. If not and you currently employ contractors within your business, IC Resources can help you manage their contracts with ease and efficiency.

What is IR35?

IR35 is a piece of tax legislation that closes an employment status loophole. Before IR35, a worker could set up a limited company and sell their services to a client effectively paying less tax than if they were an employee. This ‘hidden employment’ is what IR35 is designed to combat.

IR35 has existed since 2000. It was the PSC (Personal Services Company) responsibility to determine whether or not their workers' contract is inside or outside of IR35. From April 2021, it will now be the end client's responsibility to make these determinations. Critically, the fee payer and end-client will hold IR35 status liability.

Does IR35 apply to all companies?

No. IR35 only impacts on larger businesses. A company will be exempt if:

They have a turnover of £10.2m or less.
They have £5.1m or less on their balance sheet.
They have 50 employees or less.

So, how do you know whether your contractor is working inside or outside of IR35?

To be classed as inside IR35, your contractor will be working as if they are a regular employee. IR35 will only affect contractors who work as a regular employee and operate as a limited company.

Why is it vital to clearly understand whether our contractors are working inside or outside IR35?

If your contractor is defined as working inside IR35, they are in effect an employee. This will mean they will have to pay National Insurance contributions and Income Tax on their earnings. In practice, many contractors deemed inside IR35 will see a substantial reduction in their net income.

Contractors who operate as a PAYE contractor will not be affected. These contractors usually work through an umbrella company who already manage their tax and National Insurance contributions. PAYE contractors also receive many benefits that permanent employees receive, such as holiday entitlement and sick leave.

Should you use the CEST tool first to get an initial determination about your IR35 status?

HMRC introduced the CEST Tool (Check Employment Status for Tax) in the run-up to IR35 being introduced in April 2021. The CEST tool is a series of questions to help clients determine whether contractors are inside or outside IR35. It is free to use by anyone. However, it should only be used as a guideline, is not definitive and offers no liability protection.

Please bear in mind: The CEST tool does not remove any liability from the end-client or fee payer. HMRC also admits that the CEST tool is a 'work in progress.' The tool can indicate IR35 status, but often the tool returns an indeterminate status report. It's therefore helpful to gain expert advice to ensure you clearly understand whether each contact is inside or outside IR35.

IR35 made easy with IC Resources

At IC Resources, we have watched the IR35 legislation develop. We have teamed up with third parties, including solicitors, to devise an underwritten questionnaire to help our clients determine whether their contractors are working inside or outside IR35.

Unlike the CEST tool, if your contractor is deemed outside IR35 through our underwritten questionnaire, you will be covered against any unpaid tax or penalties if HMRC carries out an investigation. This removes the liability from the end-client as well as the fee payer, providing the contractor continues working under the practices and rules stipulated in their contract.

You will be assigned an IR35 expert within IC Resources who will sit down with you and will use our questionnaire on each individual contractor within your company to work out whether they are operating inside or outside of IR35.