The off-payroll working rules can apply if a worker (sometimes known as a contractor) provides their services through their own limited company or another type of intermediary to the client.
An intermediary will usually be the worker’s own personal service company, but could also be any of the following:
- a partnership
- a personal service company
- an individual
The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees. These rules are known as ‘IR35’.
How do I determine whether my contract is inside IR35
In April 2021 the IR35 rules will change so that medium and large businesses must decide the employment status of individuals who provide services to them through an intermediary.
HMRC launched the definitive version of its check employment status for tax called CEST tool to help determine the employment status of individuals.
While using the CEST tool isn’t compulsory, the advantage is that HMRC will stand by the result it produces as long as the data you provide was correct and entered accurately. The problem is, ensuring that whoever is completing the information understands the contract and their input in order for the data to be correct in the first instance.
As a small business owner, you can also use the CEST tool to check if IR35 applies to any contracts you have with your small business clients, as in this instance the onus is then on you to check your employment status for IR35 purposes.
You can also use it as a tool to help identify where you need to modify your contracts and working practices to prevent IR35 from applying.
The CEST tool can be very useful but it does have the trouble of failing to decide one way or another on 19% of cases based on usage between November 2019 and November 2020.
Further steps. Where the CEST tool is inconclusive HMRC says you should check its Employment Status Manual. This guidance is however lengthy, and we recommend at this point you appoint an accountant to provide an IR35 review.
Our overview
We have seen in the majority of IR35 cases, the medium and large businesses are putting a blanket across all contracts and stating that they are inside IR35 due to the financial risk of getting the determination wrong, regardless of whether it is deemed the contract is inside or outside IR35 rules.
Therefore, before you use the CEST tool or appoint an accountant to complete an IR35 review, it would be worthwhile discussing with the company whether they would consider a IR35 review to argue that the contract is outside of IR35 before you invest any time and money into defending your case.
Our experience has shown that if an organisation has decided that your contract is firmly inside IR35, there is very little you can do. If you want that specific job, you are likely to have to agree to the determination the organisation decides.
If you would like Chippendale and Clark to provide an IR35 review of your contract, our fees for this service start from £500.00 + VAT. But remember, if the determination is that the contract is outside IR35 this could save you thousands in unnecessary tax bills so long as the company you intend to work for, is willing to consider your argument.
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