What is IR35?

IR35 (“Off payroll working”) is a tax law introduced in 2000 to tackle the problem of “disguised employment”. IR35 is intended to catch any contractor who is supplying their services through a Personal Service Company (“PSC”) but would otherwise be regarded as an employee of the hirer (this means the contractor would be deemed “inside IR35”). Where an assignment is deemed “inside IR35” PAYE deductions must be made from the contractor’s pay. Any assignment “outside IR35” is classed as a genuine B2B service and is therefore not subject to the same tax treatment as employees. Where a contractor is caught by IR35, the resulting tax liability falls upon the contractor.

What is Changing?

Changes were originally due to take place in April 2020, following changes to the public sector in 2017. The government had aimed to extend the off payroll working rules (“IR35”) to companies in the private sector as of April 6th, although small companies would remain exempt.

However, due to the impact of the Coronavirus, the implementation of the reforms will now not take effect until April 2021.

This serves as a reprieve for those who had not prepared for the changes. Yet preparing for IR35 remains important. The deferment should not detract from the fact that when they are implemented, the off-payroll reforms will significantly impact the way some clients and agencies engage temporary workers.

Responsibility of defining the IR35 status will transfer from contractors operating their own personal service companies (“PSCs”) to the hirer in April 2021.

Hirers will be required to individually assess each role as being “inside IR35” or “outside IR35” by issuing a Status Determination Statement (“SDS”) and cascading it down the supply chain to the “Fee Payer” (generally the recruitment agency) and the contractor. If they fail to make this assessment they risk being in breach of “reasonable care” imposed by the new rules.

Why work with WTT?

IR35 affects tax but is rooted in compliance and employment law – which are primarily legal issues. At WTT we have dedicated legal team, led by Carla Roberts who is a highly experienced, specialist IR35 expert.

In the increasingly complicated world of employment and tax law, and particularly the law as it relates to flexible workers, agencies are looking to outsource compliance especially as many of them do not have an adequate understanding of the new rules to meet the “reasonable care” threshold set by HMRC. IR35 is a niche area of the law and many clients do not have the necessary understanding of IR35 and the employment tests behind it, to ensure compliance.

  • We are positive about IR35- IR35 could have a big impact on your agency, but if managed correctly it also represents a fantastic opportunity. We can help you use IR35 to make contingent worker engagement your competitive advantage
  • We’ve been through this before- we have extensive experience of working with agencies in the public sector and supporting them through the IR35 reforms back in 2017.
  • Contractor understanding- we have a long history of working with contractors and understand the contracting culture
  • We are risk adverse- as a law firm, we have a high degree of focus on compliance, governance and integrity, and are focused on protecting our clients, contingent workers and ourselves from risk.
  • We have a range of solutions- whether it’s umbrella, statement of work, payroll or permanent employment, we can assist.
  • We are not associated with any particular insurance company or solution, so we are impartial.
  • We can provide you with ongoing support post-implementation through our IR35 helpline.

We don’t use an algorithm or computerised tools. Our working practices review is conducted by a experienced specialist lawyer who provides the “reasonable care” necessary in assessing status. The use of a law firm and a personalised service is important to demonstrate that you have used due diligence in the assessment. Furthermore, we are not associated with an insurance provider and are completely impartial.

NB: Though pushed back a year, falling foul of the new legislation could still lead to substantial costs in back taxes, fines and penalties plus liability can now be traced to not only to a contractor’s limited company, but also their agency or hirer. On top of this, falling within IR35 tax status means a contractor could suffer a 20% decrease in net take-home pay, so it is critical that they take legal advice in these circumstances, rather than relying on the decision made by an algorithm.

You can’t rely on CEST

CEST was incorrect in over 30% of tribunals and gives 25% of cases an “indeterminate”.

HMRC’s Check Employment Status Tool (“CEST”) uses a basic checklist to determine status, and only asks 16 questions. It has been proven inaccurate on numerous times and even HMRC has admitted it is flawed as it omits to consider mutuality of obligation (“MOO”), one of the IR35 pillars.  We do not use algorithms or virtual tools.

All of our Working Practices Questionnaire and contracts are reviewed by a qualified lawyer who will follow up each assessment with a consultation.

We believe that a meeting with a legal professional is much more indicative of using “reasonable care” than a computer-generated assessment. Plus, whilst you may not receive a computer-generated “instant” decision, you will receive a comprehensive, considered legal consultation and review within 3 working days.

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Our team of experts are on hand to answer any questions you have. To see if we can help give us a call or enter your contact details below and we’ll be in touch within 24 hours.

You are passionate, are on our side, understand how we got into this mess in the 1st place (without any finger pointing or judgement) and have shown in the past to be able to stand up to HMRC.