SECTOR INSIGHT
employees . This maximises tax and the tax is more reliably collected through payas-you-earn .
IR35 does not apply to sole traders , who are operating as self-employed persons without an intermediary .
Who decides which IR35 status applies ?
Until 6 April 2021 ( April 2017 in the public sector ), it was down to the intermediary to decide on the worker ’ s employment status . But now it is down to the end client provided they are medium or large . Where services are provided to a small client , the intermediary remains responsible . The importance of this is that the body responsible is the one taking the risk of fines and unrecoverable back tax due to HMRC if they get it wrong .
The actual rules relating to IR35 haven ’ t otherwise recently changed .
The small business exemption
The good news is that clients that are small businesses and using workers through an intermediary are exempt from being on the hook for IR35 if any two of the following are true :
• Annual sales less than £ 10.2m
• Business balance sheet less than £ 5.1m
• The number of employees less than 50
All small trade businesses will meet these criteria . It ’ s easier for HMRC to chase a relatively smaller number of large clients rather than the very many workers , so enforcement is more likely .
Determining whether a worker should be deemed an employee
IR35 has three principles to determine employment status known as ‘ tests of employment ’:
• Control : is the client controlling what , how , when and where the worker does the work ?
• Substitution : can the worker send a substitute in their place ?
• Mutuality of obligation : does the employer have to offer work , and is worker obliged to accept it ?
Here are the dos and don ’ ts of a contract that would avoid IR35 .
Do not :
• Pay by the hour , day , week or month , rather pay by the job
• Provide the tools of the job
• Have a notice period
• Have an address where the work must be carried out
• Give the person a job title
• Specify working hours or an overtime rate
Do :
• Allow anyone competent to do the work . This is a must . So , the contract MUST allow substitution of another suitable person to do the work
• Allow the contractor to manage their own time and control where how they deliver their service . They must also be allowed to take on other work at the same time .
• Ideally pay on project or milestone completion , not on simply putting in hours .
• Make sure the worker moves to a different client upon completion of the project .
Note that if what happens in practise is different from the actual contract then a contract reflecting the reality is deemed to exist .
Once the client determines the worker ’ s IR35 status a Status Determination Statement ( SDS ) should be issued . This declares the worker ’ s deemed employment status with reasons . The SDS is given to the worker and the intermediary if the worker has an interest in them .
Formal checking of whether IR35 status applies
HMRC provides an online tool to “ check employment status for tax ” called CEST ( Google “ HMRC Cest ”). There are a series of questions to answer to get HMRC ’ s advice .
What ’ s the risk ?
If a client is deemed to be an employer and didn ’ t operate IR35 , they cannot recover employer NICs from any amounts treated as employment income . That would be painful .
However , HMRC has stated that businesses will “ not have to pay penalties for inaccuracies in the first 12 months relating to the off-payroll working rules … unless there ’ s evidence of deliberate noncompliance ”. All the best !
About the author
Benjamin Dyer is CEO and co-founder of Powered Now . Powered Now ’ s mobile field service management software takes the pain out of admin and paperwork for installers and other trade businesses .
www . powerednow . com
MAY / JUN 2021
59
Magazine Sponsor Issue Takeover locksmithjournal . co . uk