IR35: Potential complications for businesses and how we can help
As of 6 April 2021, IR35 legislation means that all public sector authorities and medium and large-sized private companies must follow new HMRC rules to determine if any contractors they work with are self-employed or employees. Find out what this means for our industry and how working with FEG can help simplify things.
What is IR35?
IR35 is a piece of legislation HMRC has introduced to combat companies taking advantage of the off-payroll working system.
Contractors who invoice a company through their own limited company (rather than being paid via the company’s payroll system) are working “off-payroll”. This typically applies to most freelance contractors.
Off-payroll working is common in our industry, and the majority of people who work in this way are genuine self-employed contractors. However, there are also cases of employers disingenuously paying workers off-payroll to avoid their obligations as an employer – i.e. providing company benefits, holiday and sick pay and notice period requirements etc. On the other side of the coin, contractors operating via limited companies can make tax savings.
HMRC introduced IR35 in an attempt to crack down on this practice and essentially close the off-payroll loophole for companies and contractors using it incorrectly. Under IR35, companies are now required to fulfil certain criteria to prove the employee is employed or self-employed. Contractors who do not meet the self-employed criteria must be treated as full-time employees of the company and are required to be paid via payroll, entitled to employee benefits and must pay National Insurance and tax via the company’s PAYE system.
What does IR35 mean for your business?
From 6 April 2021 the way the rules are applied will change.
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
As of 6 April 2021, you will be responsible for determining the employment status of any contractors you engage with prior to beginning work with them and will need to complete a Status Determination Statement (SDS) to confirm your decision.
For workers contracted via a supply chain (e.g. an employment agency), the end user or fee payer is responsible for confirming the employment status to both the worker and to the agency who will pay them.
The benefits of working with FEG
Confidence you are complying with the rules
Many recruitment agencies are advertising that they can help with IR35 by managing the PAYE for the end user.
It’s important to tread carefully when using this kind of system – HMRC has made very clear that it will not look favourably on attempts to get round the rules and some agencies are advertising schemes which could be considered a route to tax avoidance.
Working with a company like FEG gives you the assurance that you are on the right side of the law because payroll and tax admin is dealt with in-house.
More affordable
We’ve heard from many companies, even larger ones, who are struggling to navigate the new rules. Many are opting to use agencies as a “safe” option to avoid falling foul of the rules.
However, be warned, this usually results in rates going up as any rates have to account for holiday payments, pension, National Insurance contributions and tax.
Working directly with a company like ours tends to be a more cost-effective option as you aren’t covering the admin costs of an agency.
Reduced admin
Something else to consider is that while an agency might be acting as payroll, you are still the employer. That means you’re still responsible for providing things like PPE and indemnity insurance.
When you work with us, you can be confident that all of that is taken care of as the responsibility lies with us. Everything from PAYE, National Insurance and pensions to insurance, PPE and IT are taken care of – saving you the headache of navigating complicated IR35 rules and admin.
Trained and experienced operatives
As an employer, you will also be responsible for fulfilling industry training requirements and the performance of the workers – even if you use an agency to manage the payroll side of things.
At FEG our team of experienced and highly skilled operatives undergo regular training to ensure they are meeting all regulatory requirements, for example asbestos awareness training. This gives you the confidence that the contractors on your site are operating to the highest standard and fulfilling legal training standards.
We offer a range of CAPEX and environmental services. Get in touch to discuss your problem.