Do you have the correct 'outside IR35' contracts in place?

HMRC introduced IR35 (‘the off-payroll working rules') in 1999 with the aim to tackle “disguised employment” and prevent individuals who were de facto employees to work under the guise of limited companies.

You may be affected by these rules if you are:

·       a worker who provides their services through their intermediary

·       a client who receives services from a worker through their intermediary

·       an agency providing workers’ services through their intermediary

If the rules apply, Income Tax and employee National Insurance contributions must be deducted from fees and paid to HMRC. In addition, employer National Insurance contributions and Apprenticeship Levy, if applicable, must also be paid to HMRC.

Before 6 April 2021

If you are a worker and your client is in the public sector, it is their responsibility to decide your employment status. You should be told of their decision.

If you are a worker and your client is in the private sector, it is your intermediary’s responsibility to decide your own employment status for each contract. The private sector includes third sector organisations, such as some charities.

From 6 April 2021

From 6 April 2021 the way the rules are applied changed.

All public sector authorities and medium and large-sized private sector clients will be responsible for deciding if the rules apply.

If a worker provides services to a small client in the private sector, the worker’s intermediary will remain responsible for deciding the worker’s employment status and if the rules apply.

CEST Tool assessment

You can use the Check Employment Status for Tax (CEST) to help you decide if the off-payroll working rules apply.

The CEST tool has been subject to heavy criticism in the past – professionals arguing that the tool is not aligned with IR35 case law. However, should you choose to use an independent IR35 determination tool or even obtain independent tax advice, in case of any dispute with HMRC, they may pursue an argument that you should have used the CEST tool to determine your status.

The IR35 Inquiry Process

When HMRC opens an enquiry into your company or business, you will get a letter asking you to:

·       explain why you have decided IR35 does not apply to you

·       give a breakdown of your limited company or partnership’s income for a particular year

·       provide copies of all your written contracts for work during the specified year

If you respond with adequate evidence to show you are not within IR35, HMRC will close the enquiry.

If after examining the written contracts HMRC thinks that IR35 may apply, they will send another letter asking for a face-to-face meeting with you, as the director of your company or as a member of your partnership. If you do not accept HMRC’s invitation for a face-to-face meeting, HMRC will carry on with their enquiry by writing to you.

During the enquiry, HMRC will consider the contract(s) that govern the relationship between the worker and the client. It’s important to consider the actual working relationship, rather than just what is written in the contract. There are special rules if you are providing your services to the client as an office-holder or to perform the duties of an office-holder.

HMRC will also look at how the terms and conditions of the contracts are put into practice to see if they accurately reflect the reality of the way in which you’re working.

Having the correct legal agreements in place that underpin your ‘outside IR35’ status is paramount. Our team of experts at Templeton Brook Witt can assist with drafting the correct contracts and provide full support if you are facing an IR35 dispute. Call us for a free no obligation consultation today.

We can help you deal with any tax investigation through expert advice and specialist representation. Our team deals with matters ranging from individual tax disputes to large and complex multiple client cases. 

• Formal and Informal Notices
• Compliance Checks
• Penalty Notices
• Discovery Assessments
• Voluntary Disclosures to HMRC
• Accelerated Payment Notices (APNs)
• Code of Practice 8 – CoP 8 Investigations
• Code of Practice 9 – CoP 9 Investigations
• Contractor Loan Schemes and the Loan Charge
• DOTAS/POTAS Inquiries
• PAYE Tax Investigations 

• Corporation Tax Investigations
• IR35 Disputes
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• HMRC Unannounced Inspections and Visits
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