IR35 for Candidates

IR35 for Candidates

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IR35 GUIDANCE FOR CANDIDATES

What is IR35

The off-payroll working rules – commonly known as IR35 – is designed to combat tax avoidance by workers supplying their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used.

HMRC refers to such workers as ‘disguised employees’ as the worker doesn’t meet HMRC’s definition of self-employment, therefore, the correct tax and NI isn’t paid correctly. The rules to counter alleged tax avoidance via the use of ‘personal service companies’ became law in 2000 and remains in place today.

What is changing?

The rules around IR35 rules are not changing, but the liability of who holds responsibility for determining an interim contractor’s status does. In the private sector and third sector, currently responsibility sits with the interim contractor but from April 2020, it will fall to the end client.

How will this affect you?

If the assignment is deemed to be inside IR35 then MRG have a statutory duty to ensure that PAYE and NI Contributions are applied to all payments relating to that assignment. This could be through an umbrella company or by us deducting PAYE & NICs from your invoice before it is paid. The client may also incur additional statutory costs for your services.

What are MRG doing to prepare for these changes?

We have engaged with QDOS, the leading providers of specialist contractor insurance services in the UK. We will use information provided by them and other third-party legal experts to support our clients and hiring managers with their Employment Status Determination in preparation for the changes.

We are working hard to ensure that our clients have all of the information required to make an accurate assessment. They do have a duty to take “reasonable care” in making their assessment and you do have the option to challenge their decision if you have good reason to believe it is inaccurate or you have additional information which should be taken into account.

The key tests involve assessing the areas of substitution, control and mutuality of obligation. Please note that all 3 of these tests need to be satisfied for the assignment to fall Inside IR35.  In other words, the answer to one or more questions in all of the categories needs to be “no” for the assignment to fall inside.  There are several online tests available, including the CEST tool provided by HMRC however they are not totally reliable, and some give an “inside” determination if only one test is failed. HMRC have also publicly ruled against CEST determinations in tribunals and dubbed it ‘unfit for purpose’.

These are the areas to consider with the three main IR35 tests:

  1. Substitution
  • Are you permitted to supply an alternative individual on behalf of your limited company to provide the services?
  • Have you ever exercised your right to provide a substitute?
  1. Control
  • Can you decide where you work from day-to-day?
  • Do you have the freedom to decide when you work?
  • Do you work without direct supervision?
  • Can you decide how to do the work without your method having to be checked by the client?
  1. Mutuality of Obligation (MOO)
  • Are you working towards pre-defined deliverables or on a specific scope of work?
  • Are you free to refuse tasks which arise and fall outside the scope of your agreed contract? Similarly, can you refuse future assignments?

It is important to note that there are other factors which can be considered, but the above 3 are the most significant.

What next?

If your current assignment falls outside IR35, no further action needs to be taken.

If, however, your assignment falls inside IR35, you will have the option of being paid through an umbrella company or continuing through your limited company under the “off payroll” rules, whereby PAYE deductions will have to be made from your invoices. We will provide more details on the options available to you nearer the time.

If at any time you have any queries relating to your status, please contact MRG and we will help facilitate a discussion with the client.

Ongoing assistance

Please rest assured that the team at MRG will be on hand to support you through these changes. We are putting together an FAQ document and will be hosting a web-based question & answer session in the coming weeks. If you have any questions that you would like to be covered, please email IR35@mrgpeople.co.uk

 

Inside IR35 Outside IR35
*Control *Control
The client controls how, when and where the services are delivered Contractor controls how, when and where the services are delivered
Part & Parcel Part & Parcel
Contractor is not viewed any differently to employees of the client Contractor is clearly identifiable as external resource and not an employee
Financial Risk Financial Risk
Contractor has no risk and paid regardless of the quality of the services provided May be working to payment on deliverables and will have to cover the cost of insurances
*Mutuality of Obligation *Mutuality of Obligation
Client obliged to offer additional work and contractor obliged to accept Contractor under no obligation to accept work other than that which is already agreed
*Substitution *Substitution
Client will not be willing to accept a substitute to provide the services Contractor could provide and pay a substitute
Equipment Equipment
Contractor not providing own equipment and will use the clients equipment Contractor likely to provide own equipment to supply the services agreed

* Key determining factor

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