TaxNov 12 2019

How to work out the IR35 rules

  • Identify who is affected by the IR35 rule changes
  • Describe how to decide if someone is affected by the IR35 rule change
  • Describe what happens to the information stored by HMRC by the changes
  • Identify who is affected by the IR35 rule changes
  • Describe how to decide if someone is affected by the IR35 rule change
  • Describe what happens to the information stored by HMRC by the changes
pfs-logo
cisi-logo
CPD
Approx.30min
pfs-logo
cisi-logo
CPD
Approx.30min
twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
pfs-logo
cisi-logo
CPD
Approx.30min
How to work out the IR35 rules

From April 2020, it will be the responsibility of ‘the client’ or ‘end user’ to review the status of each worker operating through an intermediary.

The client must determine whether the worker would be regarded as an employee if they engaged directly.

The client is the organisation in the labour supply chain that is ultimately receiving the worker’s services.

The client must be able to demonstrate that reasonable care is taken in making a determination and that each worker’s status has been reviewed on its own facts.

Whilst HMRC has provided an online tool (CEST) to help determine whether a worker should be classed as a deemed employee, this tool does not currently consider all of the relevant factors; it should not be solely relied upon to reach a conclusion.

HMRC indicates that an improved version of the CEST tool will be published before the end of 2019.

Where the client determines that the worker falls within the IR35 rules, the responsibility for then applying the correct tax treatment to payments made to the intermediary will lie with the fee-payer.

The fee-payer is the organisation paying the intermediary for the worker’s services.

As the deemed employer, the fee-payer must collect and remit the tax and NIC deductions to HMRC and also submit information to HMRC about the payments using Real Time Information.

The fee-payer will be liable for secondary Class 1 NIC and, where applicable, the Apprenticeship Levy.

Labour supply chains

Where there are numerous parties involved, it will be crucial to determine who the client and fee-payer are; they may or may not be the same organisation.

For example, where an individual supplies services to a business (A Ltd) through their PSC, A Ltd will be the client.

Because it is the organisation paying the intermediary, A Ltd will also be the fee-payer.

If the individual were to supply services to A Ltd through their PSC and via an employment agency, A Ltd would remain the client but the agency, as the organisation paying the PSC, would be the fee-payer.

It may not always be obvious who the client is. For example, B Ltd contracts with a consultancy company providing professional services.

That consultancy company contracts with the PSC, through which the worker provides their services.

Who is the worker ultimately supplying their services to; the professional services consultancy firm or B Ltd?

Use of tri-party contracts (where an agency takes a commission or a fee rather than the whole payment from the client) should also be considered carefully to assess which payments fall within the new rules.

PAGE 2 OF 4