In the first in a short series of posts, our guest bloggers Dave Cooper and Brian Ackerley, from independent employment tax consultants ‘Employment Tax for Business’ (ET4B), comment and invite debate on the subject of IR35.
Hello, Dave and Brian here. We hope you find these blogs useful – feel free to post comments on the blog or one of the social media channels and we’ll do our best to come back to you.
IR35 – an introduction
Most of you will have heard of 'IR35'. Basically the rules are aimed at Personal Service Companies (PSCs) which essentially provide the personal services of one worker, to another client business. Briefly the rules say that if the worker would be an employee of the client (i.e. the end-user of the service) but for the use of the PSC, then the PSC itself has to account for PAYE and NIC on virtually all the income from that contract.
IR35 goes back a number of years, and for much of that time the rules seemed to be nicely withering on the vine. However, it only needed a few unwelcome headlines a couple of years ago (the revelations that many senior Civil Servants were being paid via their own companies, just to save tax) to persuade the government to tighten things up.
Outside the Public Sector they have implemented this using two methods; firstly in 2012 HMRC issued its 'Business Entity Tests' – in short these provide the contractor with a method of 'self-assessing' whether they are at risk of an 'IR35 compliance review' by HMRC. The second step is that HMRC has greatly increased its (previously modest) process for policing IR35, by creation of specific 'IR35 review' teams. Consequently we have seen increased HMRC IR35 review activity in the last 12 months.
So if you're running your own PSC, are you on your own then? Well, not quite. There are some very legitimate commercial reasons why Primat (and its clients) recognise your wish to stay outside IR35 too.
Perhaps the first thing to say is that the engagement contract itself, so long as it is accurately worded, can go a long way in supporting the contractor's IR35 position. For instance, terms which refer to a contractor's legitimate 'right of substitution', confirm a lack of 'mutuality of obligation', confirm that the contractor is only subject to a limited amount of control, and that the contractor does have to provide their own external insurances, do go a long way. These are each contributory factors, which case law has established are important, in establishing whether or not the contractor has the trappings of being in business in their own right.
As well as helping to run an active information programme for candidates, we will be posting some additional IR35 related articles in the coming weeks, which may include:
- How the documenting of changes at different stages of the contract can assist further;
- Are the 'Business Entity Tests' realistic; and if not, what else might you do to reduce your risk rating?
- Why might you be selected for IR35 Review by HMRC, and what happens if you are? (in short, and to quote Douglas Adams, 'Don't Panic!')
Throughout these articles we will be looking at how Primat (and the client) can actively help in this process. In the meantime if you do have a specific IR35 or other tax-related topic that you would like to be covered in our future guest blogs, do let us know.
Is IR35 a real worry for you, or just a load of hot air? Where possible we will be happy to respond to any questions or comments that you have, and/or ensure these matters are covered in the later articles.
Thanks for reading!
Brain & Dave – ET4B