At MyFM we seem to have inboxes full of messages offering help and advice and telling us how complicated the latest changes to IR35 will be – but they really aren’t.
Naturally, we’ve been carefully studying the potential impact the IR35 changes will have on our own business and I’m sure many of you are taking steps to get your house in order ahead of the April 6 deadline.
Some people are surprised when we say that the measures that we are planning at MyFM, which at any given time has between 50 to 100 associate contractors working with FM clients, are largely based on the free advice and assessment tool from HMRC:
For our purposes and for our clients who have asked for our help, we haven’t yet found anything so complicated that we couldn’t resolve it using the HMRC resources. Yes, you need to be methodical and systematic in your approach, and if you are dealing with a large number of contractors this is potentially time consuming, but it really isn’t that complicated.
There is plenty of specialist advice available from accountancy firms, lawyers and consultants, all with varying price tags attached, if you want it. But from what we can see, if an individual is a true contractor, that will remain the case. But if a hirer or individual have been using the contractor model when someone should have been classed as an employee, then things are about to change.
The way we have got our heads around this at MyFM is by considering what is staying the same and what is about to change. The rules around IR35 itself are not changing, not noticeably anyway. But what is changing is that private companies, along with the public sector, will now be responsible as hirers for making the assessment on whether an individual is inside or outside IR35, they will be accountable to HMRC on that decision and responsible for arranging for the tax and national insurance to be paid.
To start to get you thinking on this and to help bust a few of the myths, we have collated a quick guide to the high-level changes on this topic.
Who will these changes apply to?
For the first time, medium and large-sized hirers in the private sector (based on annual turnover of more than £10.2million/ balance sheet total of more than £5.1 million and/or more than 50 employees) will need to assess and communicate the employment status of individuals.
Public sector hirers already make these assessments and have been doing so for several years, this will continue – some extra responsibilities are listed in the HMRC guidance.
Small companies (those under the criteria above) are classed as exempt and when they hire, individual contractors will remain responsible for determining their own employment status.
If you are a contractor, or freelancer, providing a service to a large or medium-sized company, you should expect that company to assess whether you should be on or off payroll and notify you of the outcomes of this assessment and any implications.
What will medium and large companies be required to do from April?
For every contract agreed with an agency or worker, companies will need to decide the employment status of an individual, pass this decision to the worker and keep detailed records of reasons – the HMRC tool can help companies to do this.
They will need to have processes in place to deal with any disagreements – details of what is expected are listed in the HMRC guidance.
Individual contractors can also use the tool to make their own assessment.
Who is responsible for tax and national insurance payment?
Now this varies depending on the scenario affecting you or your organisation and is too detailed to include in a blog. So, the best thing to do is to look closely at the HMRC guidance on this, so you can understand how the rules should be applied – https://www.gov.uk/topic/business-tax/ir35
There are a few general principles to bear in mind:
- If you are the organisation which makes the assessment on status and off-payroll working rules apply, then you will be responsible for deducting tax and national insurance from your workers’ fees and paying it to HMRC.
- If you are an intermediary, such as an agency, you will be responsible for deducting employer National Insurance contributions from the fees for the services which your worker provides.
- If you are a contractor and you are providing services to a small company which is exempt, then your situation will continue as is – you will continue to make the payments.
What criteria should be applied to determine status?
The HMRC assessment tool takes you through this in detail and looks at criteria such as the contract in place, substitution arrangement, the working pattern, equipment required, and the length of time services will be provided.
If your business doesn’t work with contractors, or you are not a contractor yourself, then you don’t really need to worry about these changes. But if you are either of these things, you should be taking clear steps to prepare, so you are ready to meet your responsibilities under the new arrangements.
If you are a contractor working with private sector clients, then you should assess your own situation, using the tools provided by HMRC. If you provide services to just to small companies, you must make your own assessment. In any event, it is important that you keep lines of communication open between those commissioning work and those providing services, so that all parties fully understand who has responsibility for what.
Our advice is to start your preparation now, if you haven’t already, particularly if you are involved in hiring a large number of contractors. MyFM is able to help clients but we firmly stand by our earlier remarks. Time consuming? Possibly. But are these changes to IR35 complicated? No. In most situations, it shouldn’t be daunting for companies provided they follow the advice on offer.