From 6 April 2021, most private sector companies hiring limited company contractors, whether directly or via an agency, become responsible for determining the tax status (known as ‘IR35’) of those roles.

Even if they haven’t had employees for a long time, there could be tax implications for all firms that have ever employed anyone through a service provider.

The introduction of IR35 to the private sector may lead to a further skills gaps. We’d expect to see less demand for contractors but a possible increase in direct employment opportunities.

Companies will become responsible for defining their workers’ status as employed or self-employed and non-compliance will result in fines and tax paybacks. Similarly, contractors will need to ensure that they have relevant insurance in place and have access to legal advice should they need it. By learning from the mistakes of others and starting the evaluation process early, the IT industry as a whole can ensure compliance to IR35.

Not all private sector businesses will be affected by the change: While a HUGE proportion of UK businesses will be affected by the reform, the legislation will not apply to the smallest 1.5 million companies. Large and medium firms will need to decide whether the IR35 rules apply to their workers who are contracting through their own limited companies.

Get up to speed

Most workers are, by nature, freelancers. They may have different titles, but what they really do, the work they do, and how they’re paid, are all the same.

Most people could work as freelancers and wouldn’t be singled out as ’employees’ for purposes of IR35. They don’t get sick pay or holiday pay, nor do they receive much of a pension.

However, there are still certain circumstances where employees, such as performing public services, usually qualify for employment status.

Knowing your legislation is the first step in avoiding the IR35 traps. There are many legal advisors who specialise in helping SMEs understand IR35 and stay clear of any difficulties.

IR35 Changes: Here is what you need to know!

On April 1st 2021, the new private sector off-payroll rules for IR35 come into force. This video outlines the changes that IR35 are introducing, we hope that…

 

Pretium Resourcing uses Engage Tech for their proprietary software, which incorporates safeguards against IR35 – read more here

Engage Tools for IR35 – Engage

Outside IR35 – Employment status determined on platform and shared with supply chain – Contractor IR35 assessment & insurance (e.g. Kingsbridge / Qudos / Jelf etc.)

Start tax preparation early

These days, there’s no excuse for not preparing your tax returns regularly. There are plenty of financial tools that make preparing a tax return as easy as 1, 2, 3.

An early start helps you understand what you could potentially be liable for, but for many small businesses, running out of time and losing a month is a real possibility.

As an example, if you’re responsible for paying tax on a monthly basis, but don’t complete a self-assessment return within 3 months, you could face a late payment charge – which can be up to £120 per month.

Consider outsourcing your compliance

If you don’t know your tax legislation or it’s complicated, why not let a professional tax advisor take care of your business tax obligations?

Not only are tax advisors experts when it comes to IR35 and related legislation, they also have a wealth of practical knowledge that can help you understand and deal with all the other smaller day-to-day tax issues.

Dealing with IR35 can be a tricky process, but taking advice could save you thousands of pounds in HMRC fines and may allow you to be more creative with your tax-efficient use of limited resources.

This might also mean you can benefit from business relief, where you don’t pay tax on the additional costs you incur because of the nature of your business.

Interim contractors are going to be needed now more than ever.

As we head into a national (possibly global) recession, mergers and acquisitions are predicted to be at an all-time high. This results in the need for business transition experience – skills that, understandably, very few businesses have in their permanent ranks. Short to mid-term interim help is an excellent way to smooth transitions and create a roadmap for your future.

Use the HMRC CEST tool to check compliance

The HMRC have produced a tool (CEST) which can be used to check the employment status of a worker for tax.

The tool was updated in November 2019 in preparation for the extension of the off-payroll working rules.

The updated version attempts to address some of the criticisms addressed at its predecessors, particularly in relation to its inability to deliver a result in marginal cases. However, the updated tool is not without its problems – it does not test mutuality of obligation which is key indicator of whether a worker is employed or self-employed.

The tool can be accessed on the GOV.UK website at:

 

Check employment status for tax

Use this service to find out if you, or a worker on a specific engagement, should be classed as employed or self-employed for tax purposes.

Get in touch with Pretium about how we are helping other clients manage their temporary workforce and how they are keeping within IR35 using our systems.