When was IR35 introduced?
IR35 is nearly 20 years old and started as a press release from the Inland Revenue (now HMRC) following a statement by the Chancellor in the 1999 budget, and the legislation was introduced in April 2000.
In 2017, changes to IR35 were introduced for public sector organisations, which made the public sector organisation responsible for deciding whether the worker would have been regarded as an employee for tax purposes if they were engaged directly.
In April 2021 the HMRC rules are changing, this is expected to have a huge effect on employment practices in the pub’s sector, especially where a pub manager is a self-employed contractor (say) supplying staff or labour often via a small limited company – or personal service companies (PSC).
The data from the HMRC indicate the majority of small company service set-ups are not genuine self-employment and will fall foul of the new rules, the big change is that any company caught hiring “workers” under arrangements that fall foul will be fined from April onwards.
The change in April 2021 pushes the liability from the “worker” to the “hirer”, to set the tax status of their contractors and freelancers (which was previously set by the contractors themselves). Contractors found inside IR35 will have to pay more tax than they might expect, many people will have to change status and become employed – though this is not a bad thing as they will then get employment rights such as minimum wages, overtime, pensions and holiday/sickness pay. HMRC expects to recoup over £100m per month by ending what has been dubbed “disguised employment” or sham “self-employment”.
Who does it affect?
If the assignment is assessed as being “inside” IR35, tax and national insurance will need to be deducted from the payments made to the worker. In the event that an assignment is assessed as “outside” IR35, payments can be made gross.
Those who are not genuinely self-employed will no longer be able to be off payroll and supply services to pub companies or landlords after April 2021.
They will either have to become employed or stop working. It is not going to apply to tenants and lessees who rent pubs.
To each assignment ask yourself the following questions to determine what the organisation / hospital’s decision on employment status is likely to be:
1. The nature of the duties being undertaken – is the job one that you would expect to be done by an employee? Are there current employees performing a similar role? If so, this could increase the likeliness that the assignment falls under IR35 rules.
2. Substitution – does the limited company who provides the worker have the right to send a substitute to carry out the role without requiring approval from the end client? If so, this could increase the likeliness that the assignment falls under IR35 rules.
3. Mutuality of obligation – Does the worker have the right to reject work from the client? Or is the client obliged to provide the worker with work? If yes to latter then, this could increase the likeliness that the assignment falls under IR35 rules.
4. Supervision, direction, and control – To what level is the worker dictated as to how they should perform the day-to-day tasks for the assignment? Are working hours mandated? If the level of control is considerable, it could increase the likeliness of the role to fall inside IR35.
5. Integration into the business – to what extent is the role an integral part of the company? Does the provider present themselves to customers as representing the business? Does the worker have managerial responsibilities? Again, if they do, the worker is behaving more like an employee
6. Integration into the business – to what extent is the role an integral part of the company? Does the provider present themselves to customers as representing the business? Does the worker have managerial responsibilities? Again, if they do, the worker is behaving more like an employee
7. Is the worker in business on their own account – does the worker bear financial risk in the performance of the duties? Who supplies any equipment required for the role? If they do bear financial risk or provide their own equipment, they are less likely to fall under the scope of IR35.
8. Is the worker entitled to employee benefits such as pension contributions, paid holidays, sick pay? If the answer is yes, they are being treated like employees and are more likely to fall inside IR35 rules as a result.
HMRC’s guidance stresses that the factors it lists are not exhaustive and that the overall picture must be looked at to determine employment status.
HMRC has provided two example scenarios within their consultation to illustrate how these factors will impact the determination:
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Letha Charles – Founder & Director
L Charles Accounting Limited