Off Payroll Working (IR35) rules
What are they?
The Chancellor announced in the October 2018 Budget that the government intend to reform the off payroll working rules (known as IR35) in the private sector. This follows consultation and the previous roll out of the reform in the public sector.
The responsibility for operating the IR35 working rules will move from the individual contractor to the organisation, recruitment business or other third party contracting with and paying the contractor (the fee payer).
Who do they apply to?
Currently, contractors working in the private sector who provide their services through an intermediary (personal service company) have the right to determine their own employment status for each assignment and deem themselves outside of the IR35 rules.
What is changing?
From the 6th April 2020 responsibility for operating the off payroll working rules will move from individual contractors to the organisation, recruitment firm or other third party engaging the contractor. And along with this, responsibility for tax and NI deductions will be levied at the fee payer (client or recruitment company) who holds the contract with the contractor, rather than the contractor themselves. If the off-payroll proposals are legislated in their current form, should HMRC disagree with the determination made, it can investigate and insist on back payment of tax as well as penalties for late payment. This raises some risk for the end client.
What are we doing?
Grafton Banks Finance is taking a pragmatic view to the IR35 rules. Our primary duty is to our clients and to our candidates, to ensure all parties can continue to work within the relevant tax legislation without penalty.
To ensure a seamless transition when the rules do change in April 2020, and importantly to protect all parties, we have partnered with Parasol Umbrella Company (Parasol) to manage our contractors. Parasol offer a range of employment solutions, including the Qdos Contractor assessment tool (Qdos).
Qdos offers specialist services relating to the IR35 rules. They provide solutions and consultancy services for recruitment agencies and liable* UK businesses which engage a self-employed work force.
Through Qdos, Grafton Banks Finance offers clients a free assessment of contract role status, to establish if the role can be offered outside of IR35. Candidates can also self asses prior to starting an off-payroll position – allowing clients and candidates peace of mind. If HMRC successfully challenge a Qdos decision and tax/NI liability/late payment penalties fall due, the loss is insured by Qdos.
Any contract roles which may be outside of IR35 are now being assessed by Qdos in anticipation of the upcoming changes.
Assignments ‘outside of IR35’
When Qdos makes the status determination that the assignment is outside of IR35 it fulfils the guidance of reasonable care stated by HMRC. In addition, if HMRC successfully challenge a Qdos decision and tax/NI liability/late payment penalties fall due, the loss is insured by Qdos.
Assignments ‘inside of IR35’
If the assignment is found to be inside of IR35 Grafton Banks Finance offers a range of alternatives to the off-payroll method.
- PAYE payroll (agency workers) the assignment is run through Grafton Banks Finance’s payroll. Tax and NI are deducted at source. The recruitment business (Grafton Banks Finance) contracts directly with the worker under agency rules and provides the worker with rights.
- Umbrella Company – where an umbrella company employs the worker directly; the off payroll IR35 rules do not apply. We have partnered with Parasol to offer a recognised and reputable umbrella company solution to our contractors.
To fully explain the way in which Qdos works, please follow this link.
The new IR35 rules will only affect medium and large private sector organisations. The responsibility for making status determination for clients classed as a ‘small’ business remains with the Personal Service Customer (OSC)
Under Section 382 of Companies Act 2006 a client qualifies as ‘small’ if two of the following conditions apply:
- Annual turnover not more than £10.2m
- Balance sheet total not more than £5.1 m
- Number of employees not more than 50.