IR35 - What are your options?

The Off-Payroll Working Rules come into force from 1 April 2021 after several delays.

This legislation will affect medium and large-sized organisations outside the public sector that engage with individuals who supply their personal service through an intermediary, a personal service company (PSC), and who would be treated as an employed if engaged directly by the end client.

Once you have identified any individuals who provide their personal services through a PSC, or any people providing services through a PSC from an agency, and determined their employment status, either by using the HMRC CEST Tool or by speaking with your tax adviser you now need to decide how to proceed.

For any PSC which meets the deemed employee criteria and will fall inside the Off-Payroll Working legislation there are several options:

 1.     Continue paying the individual through their PSC

The payments will be subject to PAYE as a deemed employee with income tax and employees NIC deducted and employers NIC payable by the end client.

You will need to consider who is going to suffer the Employers NIC?  The PSC by virtue of a reduction in rates or the end client? 

Payments to deemed employees will also attract a liability under the Apprenticeship Levy Scheme if your PAYE liability is over £3m per annum. 

With an increase in costs for the end client, you may therefore still need to renegotiate contract rates. 

If the end client is within the Construction Industry there are possible CITB (Construction Industry Training Board) effects.

As a deemed employee there is no requirement to make statutory payments (holiday pay, sick pay, maternity pay etc), no employment rights, no auto-enrolment pension contributions or student loan deductions.

The individual will also likely suffer a reduction in the travel and subsistence costs which will be allowable against income as now taxed as employment income rather than self-employed.

 2.     Renegotiate the contract with PSC to ensure that they would not be a deemed employee.

This is a whole topic in itself and is outside the scope of this article.  For more information please do not hesitate to contact our IR35 specialist Ben Davies or an employment law specialist.

 3.     Engage someone else who is not PSC. 

You could engage an agency worker but you may still need to issue a Status Determination Statement for your protection.

 4.     Make the individual an actual employee.

This will mean consideration of statutory payments (holiday pay, sick pay, maternity pay etc), auto-enrolment pension contributions and employment rights so you should check with your Employment Law specialist for more information.

IR35 is a daunting piece of legislation and is difficult to interpret.  If you have any queries please do not hesitate to contact us.