In April 2021, the public sector off-payroll working rules will extend to the private sector. As was widely reported, this new IR35 reform was supposed to come into effect in April 2020 but was delayed 12 months due to Covid-19. Here, we take a look at what contractors and businesses need to know and the immediate action that should be taken.
There are three main changes that you need to be aware of:
Medium and large-sized businesses will now be responsible for determining a contractor’s employment status rather than the contractor. This means they must demonstrate reasonable care has been taken when working out IR35 status.
Contractors should be given the reasons behind the decision and can raise a dispute if they disagree with it.
Small businesses are exempt from the changes. So, a contractor will be responsible for working out their employment status if a company has:
An annual turnover of no more than £10.2 million
A balance sheet total of no more than £5.1 million
No more than 50 employees.
Are you compliant?
Generally, IR35 doesn’t apply if a contract is for services rather than employment. This comes down to three contractual principles:
1. Supervision, direction, control. Relating to how much say a client has over how a contractor completes their work. It breaks down to:
Supervision - if someone is overseeing another person doing the work to make sure it’s happening and being done correctly.
Direction - someone making sure another person does their work in a particular way, usually through instructions, guidance or advice.
Control - where someone is dictating what work a person does and how it should be done.
2. Substitution. Contractors should include a right of substitution clause in contracts. It means that another contractor could take their place and provide the same service. If a contractor cannot be substituted for, it could be argued that they are providing a personal service and are therefore an employee.
3. Mutuality of obligation (MOO). MOO exists if the client is obliged to provide paid work, and the contractor is obliged to accept and complete it. Genuine limited company contractors should not expect or receive such an obligation because they are engaged on contract to perform a particular task for a specific project.
If they haven’t already, both businesses and contractors need to prepare for the April changes, whether that’s reviewing contracts or understanding which clients count as small businesses.
Help is at hand
PRS protects clients and contractors with the insurance-backed, Kingsbridge IR35 Status tool, which brings the best experience and support into one place. With the tool, clients can ensure transparency before and during engaging contractors, while contractors have the peace of mind that any placement they are entering has been accurately assessed.
Developed by Andy Vessey ATT, it takes a best-of-both approach, combining a custom-designed automated process with in-house expert consultancy to provide the quickest, most accurate IR35 status result available.
If it’s a clear-cut case, the tool generates an instant determination and a comprehensive report that pulls through the notable positives or negatives of a given engagement, as well as an official Status Determination Statement (SDS). If it’s a borderline result, the answers given are manually reviewed by Kingsbridge’s in-house IR35 specialists.
Get prepared for IR35 today. Click here to find out more.