IR35: Guidance for Workers April 2021

IR35: Guidance for Workers April 2021

Background on IR35 HMRC introduced IR35 to tackle the problem of “disguised employment”, i.e. where people who work in a similar way to fulltime employees bill for their services via their limited companies to make their business as tax efficient as possible. The IR35 rules are designed to ensure that contractors working via their limited companies, deemed to be doing the same work of an employee, pay broadly the same tax. From April 2021, the onus of deciding a worker’s status will fall firstly to the individual and then to the end client, thereby extending HMRC’s reach for unpaid tax. In all contracting scenarios, the obligation to understand, apply and comply with IR35 lies with the end client. In this context, the end client is the one with the contractual relationship with the contractor, i.e. PEN. Where the end client and the contractor can demonstrate they fulfil certain criteria and that there is no hidden employment, the contractor is termed “out of scope”. Where the contractor is considered to be a disguised employee, then the contractor is deemed to be “in scope” and liable for personal taxes and NI as if he/she were a direct employee of the end client. 2 As a rule of thumb, IR35 won’t apply if the contract is for the services provided instead of employment. Over-and-above “a contract for services” IR35 asks 3 main questions to determine employment status: 1. Control: what degree of control does the client have over what, how, when and where the worker completes the work? 2. Substitution: is a personal service by the worker required, or can the worker send an appropriate substitute in their place? 3. Mutuality of obligation: is the employer obliged to offer work, and the worker is obligated to accept it? Other questions are also asked to provide further clarity, including: status of the contract; whether there is financial risk; independence of activity; and availability of benefits.

PEN’s Position & Status determination process PEN continues to see associates as an integral part of our proposition; you are part of our highly experienced and expert delivery team and will continue to be so PEN’s The IR35 status of all Workers will be determined by PEN as we act as the ‘End Client’ PEN has partnered with Qdos, who use decision engines based on HMRC-designed tools, to manage our IR35 status assessment process The assessment consists of a series of questions which, when completed, will give a Status Determination Statement (SDS) outcome which confirms whether the assignment is deemed inside or outside of IR35 Position If it is deemed in-scope, the Worker will be liable for increased Tax and National Insurance Contributions If the inside-scope assignment is beneficial to pursue, the Worker will be paid via an umbrella company for their services If it is deemed outside-scope, the engagement process will continue as normal PEN will discuss all new associate assignments with you based on a preliminary outside-scope status As soon as you start a new project, you will be asked to complete the Qdos assessment in order to confirm the status determination of the role PEN’s Assessme nt Process The completed assessment will be reviewed by a Qdos Consultant, sent to the PEN Project lead to approve, then all parties will receive a copy of the final status determination If a role is deemed in-scope, discussions will commence about engaging your services via an umbrella company so the relevant tax and national insurance deductions can be made Qdos will re-assess all outside scope roles every six months and will indemnify PEN against incorrect determinations PEN and the Worker are responsible for ensuring, on an ongoing basis, that the day-to-day working practices continue to meet the stated terms and intentions of the contract 3

Working with an Umbrella Company Associates are required to sign up with an umbrella company in order to collaborate with PEN on any inside-scope roles. In simple terms, an umbrella company is an outsourcing of your payroll. They are designed to remove nearly all the administration and company management associated with a LTD company, which is why they can be a popular choice for some contractors Client PEN Umbrella Contract for Contract for Contract of Services Services employment Worker Umbrella companies employ the Workers and are liable for all employment risk. The umbrella company provider takes care of all accountancy and taxation matters and also deal with all administration matters including; timesheets, variable pay, holiday, pension, statutory payments and insurance indemnities. You avoid the hassle of running a limited company which involves completing VAT returns, submitting RTI returns, company accounts, taxation, director’s responsibilities and so on A PAYE umbrella treats all your income as salary. A PAYE umbrella will apply both employer’s costs to your deemed daily income and deduct employees tax and NI before paying you. This will mean a difference in your take home pay from when operating as a Ltd Co. An umbrella company can calculate worked examples based on information you provide regarding your day rate to help you assess this impact. 4

Umbrella Company options Associates are required to sign up with an umbrella company in order to collaborate with PEN on any inside-scope roles. We are happy to work with an umbrella company of your choice, alternatively please contact one from the list below, as PEN already has a relationship with these providers: PAYSTREAM GIANT Website: Website: https://www.giantpay.co.uk/ https://www.paystream.co.uk/ Tel: 0330 024 0946 Tel: 0161 516 2128 (option 1) Email: [email protected] Email: [email protected] FOCUSED PARASOL Website: Website: https://parasolgroup.co.uk/ http://focusedumbrella.co.uk/ Tel: 0800 464 0409 Tel: 0161 923 0210 Email: [email protected] Email: [email protected] 5

Working Practices IR35 status can be difficult to determine without painting the full picture; therefore the individual’s working practices need to be considered alongside the terms of the contract. Some key factors to note: RIGHT & ABILITY TO SUBSTITUTE You are required to demonstrate that you can source a suitable substitute that meets the role expertise/skillset requirements should you become unable to deliver the services. The right to supply a substitute must be a genuine one, therefore you should be able to show how a substitute could be used in practice; your company should always pay for any costs relating to providing a substitute worker, and you should also provide any training, and make all arrangements for bringing the substitute on site. NO CONTROL OF WORK BY CLIENT It is important that you can demonstrate a certain amount of autonomy in the way you undertake a project and how you complete the work you have been hired to do. Your Project Lead, should work with you to ensure you have as much flexibility in this space. The Worker should demonstrate the ability and feel empowered to deliver your objectives / deliverables the way you choose. NO MUTUALITY OF OBLIGATION The mutuality of obligation question arises when a contract expires. It would be seen to exist if an employer expects you to undertake work when asked to do so, and you expect to be given work on a constant basis. Therefore, in the context of IR35, such obligations need to be avoided otherwise you will be considered to be ‘part & parcel’ of the Client organisation. FINANCIAL RISK & COST OF REWORK A Worker who is genuinely providing a service will incur financial risk as you are responsible for reworking your mistakes and substandard deliverables at your own cost 6

In Business On Your Own Account These pointers are the typical characteristics of a working business and may help show that you are in business on your own account, rather than working in a similar fashion to an ‘employee’. Do you have multiple clients? This is a strong pointer towards self-employment Do you have your own business website and company email address? Do you have company stationery, letterheads, a logo, and customised invoices? Do you use any of your own equipment for contract purposes? Is your company registered for Value Added Tax (VAT)? Has your company ever employed anyone else or used subcontractors? Do you have business liability and professional indemnity insurance in place? Do you have dedicated office space in which you have carried out any contract-related work? Do you regularly tender for contract work, or apply for contract positions? 7

IR35 FAQs Who decides IR35 compliance? Are short term contracts liable to IR35? It is the end client’s (PEN) responsibility to determine the IR35 status for Yes, every new assignment or contract is looked upon by HMRC in their all Workers. We have engaged Qdos to assess roles on our behalf. own right Will I have to work for more than one company in a financial What is the most important factor in determining if a Worker’s role is inside or outside of IR35? year to qualify to remain as a limited company Worker? IR35 is a complex piece of legislation and all aspects of the contract and Working for multiple clients may strengthen your IR35 status however as working practices are taken into consideration; but the heavily weighted each assignment will be assessed in its own merit. you could find you are areas are; Substitution, Control and Mutuality of Obligation. inside IR35 on one assignment and outside on the other. How will IR35 effect payments and pay? Will I be offered a permanent position in place of a contract? If a role is deemed in-scope you will be required to adopt a PAYE payment This will depend on the client organisation and their approach to IR35. method, as you will be liable for Tax and NI deductions. Some may take the opportunity to offer Workers permanent roles based How will IR35 effect my current contract if I am mid project? If the role is determined to be in-scope, you will be required to sign up with an Umbrella Company to remain engaged. If the role is deemed outside scope then the contract will continue as normal. I have worked with the same client for over 2 years, am I vulnerable? No, not necessarily, so long as each new project has generated new contractual deliverables, and your working practices demonstrate that of a business and not an employee. 8 on their business model others may adopt a blanket ban on PSCs and you will be required to operate under an umbrella. Is there risk of retrospective claims if a Worker is deemed as inside IR35 post April 2021? HMRC can choose to investigate as far back as 20 years, but this would only happen if they suspect fraud or criminal behaviour. Minor, unintentional errors may see HMRC retrospectively investigate contractors up to 4 years back, which increases to 6 years if HMRC can prove carelessness.

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PEN, its employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. Outputs from any IR35 advice or support will be for guidance only, and we do not claim to provide legal advice. The advice that we give on IR35 is based on current HMRC guidelines. Whilst our advice is given in good faith, and PEN will adhere to these guidelines and processes in our own Worker-heavy business, PEN accepts no responsibility for any loss which may arise from reliance on information contained within any outputs. 9