Employers, are you marching on, or stumbling over IR35?
6th April is almost here and IR35 changes are a reality, but how will this affect you as a recruiter or fee-paying agency? We appreciate the changes feel like they have been on the horizon for an age, but the dawn of a new era is in sight. Are you marching on towards it, or still stumbling over the implications of IR35? Here are the most frequently asked questions from an employer’s perspective, answered.
What’s changing on 6th April?
The changes are focussed on the private sector and affect end clients who have an annual net turnover of more than £10.2million, a balance sheet of more than £5.1million, or have more than 50 employees. The responsibility of determining contractors’ employment status, will fall to these end clients. They, or you, as the fee-payer are responsible for making the correct NIC and income tax deductions.
What are we responsible for?
Where the end client decides the contractor is inside IR35, you will be responsible for making the correct deductions. If you continue to pay contractors as a Limited Company without making the necessary deductions, the liability will fall on you, as you will be the party deemed to have failed to enforce the new ruling. You must also ensure that you communicate the employment status (as decided by the end client) to every contractor. Again, failure to do this will leave you liable for income tax and NICs due.
How can we help our clients to comply?
It’s really important that they understand the significance of their employment status and the consequences of getting it wrong. If the end client determines that they are acting as an employee, then they fall within IR35. If they ignore this or decide to continue with payments via a Limited Company without the correct income tax deductions, they and you will be under the microscope for tax evasion.
What do I need to do?
You’ll need to administer all IR35 status decisions, communication with clients and the associated record keeping. Make sure that every contractor is informed of the end client’s Status Decision Statement, and the reasons and consequences behind it. Ensure that correct contracts are issued. Deduct the correct National Insurance Contributions and Income Tax, in-house. Pay the contractor the net amount, rather than the gross invoice value and submit Real Time Information to HMRC.
Can my end client put in a blanket approach?
Yes, the end client has the right to apply a blanket approach, as they are now liable for any unpaid tax. It may be simpler for them to apply the same ruling across all the contracts, due to the complexities involved in individual determinations.
What if our contractors have done an IR35 test and confirmed they are outside IR35?
Sorry it’s no longer their decision, the employment status has to be decided by the end client. If the contractor is suspected to be inside IR35 and have claimed to be outside, they must be prepared to be investigated by the HMRC, any tax owed can be backdated up to six years.
Should they close their Limited Companies if they’re inside IR35?
No, they can choose to still be paid via their Limited Company, but this must be the net amount after deductions from the fee-payer. It is their decision and should take into account that it might be worthwhile if they have other work, that’s outside IR35.
What can an Umbrella Company offer?
In short Umbrella Companies take on the payroll and admin burden, ensuring all payments are compliant, efficiently processed and on time. At Optimum, we offer Umbrella pay. Under this service, your contractors become our employees for the duration of the contract. They will receive full employment benefits, including statutory pay and holiday pay. We look after their invoicing and cash collection, their personal tax reporting and ensure full compliance. We’re totally transparent about our costs and always here to help you through. We process payroll daily for full payment flexibility.
I’m still confused, where do I get help?
Get in contact with us, and our dedicated IR35 team will point you in the right direction. Our IR35 consultants can offer legal services including reviewing contracts and employment status determinations. You’ll find us straight talking, and happy to help. Just drop an email to: Salesuk@optimumpaygroup.com