Construction Professionals: Here Is A Q&A Session About IR35 Changes – Part 2

IR35 finance concept. United Kingdom tax law, tax avoidance.

On 22nd October 2020, we attended a webinar with HMRC about changes to off-payroll rules coming into effect from April 2021. In this part 2 article, we provide Questions and Answers from the webinar session. 

Q: if the SDS is not provided from the Client to the Fee Payer, before end of the project and when provided is deemed inside IR35 and therefore Tax and NI has to be deducted, should this be applied from when the SDS is provided from the Client or form the beginning of the project?

A: Where an engagement is within the scope of the rules, a SDS should be issued to the worker and any party the client contracts with prior to the first payment being made after 6 April 2021. If this is not done any liability will remain with the client until it is done.

Q: How long does a client need to keep a Status Determination Statement that they have produced for a worker?

A: Standard document retention rules apply to the SDS. ESM10012 provides further details.

Q: If we fill out the CEST Tool and base ourselves solely on that together with the contract agreements, is this sufficient to have a clear determination?

A: An accurate CEST output can be used as a valid SDS.

Q: If the SDS is not provided from the Client to the Fee Payer, before end of the project and when provided is deemed inside IR35 and therefore Tax and NI has to be deducted, should this be applied from when the SDS is provided from the Client or form the beginning of the project.

A: This will depend on when payments for the worker’s services were made. If the client makes payments for those services without issuing the SDS, then the client is liable for tax and NICs on that payment. Further payments made after the SDS is issued would then become the responsibility of the fee-payer in this example.

Q: How long is the SDS valid for?

A: Should there be material changes to the working arrangements an updated SDS should be produced.

Q: Would the rules apply when engaging EU contractor who works remotely for the UK entity? 

A: ESM10025 Provides information on international engagements.

Q: Is CEST due to be updated again prior to April 2021? I.e. a further iteration of the tool.

A: There are no plans to significantly change CEST or the decision making that sits behind it.

Q: Who will be liable for PAYE/NIC if a contractor working through a PSC comes within IR35. Is it the PSC, the supplier of contracts or the contractor personally?

A: The fee-payer is liable for the tax and NIC’s. This can be the client if they engage with the PSC directly but can also be the agency who contracts with the PSC within the supply chain and who pays the PSC.

Q: Is the client obligated to provide an SDS for incumbent workers prior to April 2021? I.e. a client states they have assessed contractors are inside, and so in April must change their engagement method away from LTD. BUT that they will not give the SDS as this doesn’t come in until post-April by which time the person has changed engagement.

A: An SDS must be issued prior to the first payment after 6 April 2021 for work done after 6 April 2021. An SDS issued prior to 6 April 2021 can be valid for engagement carrying on after that date providing it is accurate and meets the legislative requirements.

Q: When you communicate the SDS to the PSC/worker, can you impose a timeline on the PSC/worker to appeal the decision?

A: The legislation allows a contractor to make representations at any point before the final chain payment is made, so once an engagement has ended and is paid in full the client will have finality. In reality, we expect the vast majority of contractors to make their representations as soon as they receive their SDS.

Q: Will the use of Umbrella companies, by Contractors, still be a valid way of ensuring PAYE and NIC is paid or will the responsibility still sit with the client to ensure this is paid?

A: Contractors can still choose to use umbrella companies to provide their services. For the off-payroll working rules, clients need to understand the ways in which contractors are engaging with them to ensure they are meeting their responsibilities. For umbrella companies, all monies received from the engagement with the client should be operated via PAYE and have tax and NIC deducted, in this instance off-payroll working rules will not apply.

Q: By Intermediary do you just mean a PSC or does this also include an agency?

A: Yes this is correct. For these rules, the intermediary is the worker’s own intermediary. This would usually be a PSC, it could also be a partnership in which they are a partner or another individual. It does not refer to an agency.

Q: If an engager is using CEST what do they need to keep as a record in case HMRC comes in to review – contract, CEST printout and the like. Is it sufficient to use just the CEST?

A: You must keep the CEST output and any associated documentation supporting the answers given.

Q: If the agency completes the CEST tool and passes to the client for their agreement or not do HMRC consider that to be an acceptable practice?

A: HMRC believes that the client has the best understanding of the working relationship, which is why the legislation requires them to make the decision. A client may choose to outsource that decision making but the client cannot outsource their liabilities. If in this case the client has been found not to have taken reasonable care, any tax and NIC liability would sit with the client.

Q: If a worker for the purpose of the SDS determination is domiciled for Tax outside the UK, should this test be used if they are working temporarily in the UK.

A: ESM10025 confirms that the worker must be a person who is within the UK charge to tax and/or liable for Class 1 NICs.

Q: Does a SDS have to be completed for each role available or for each contractor fulfilling that role?

A: Role-based determinations can be carried out for workers engaged under the exact same terms & conditions, carrying out the exact same role. If the roles or terms & conditions vary in any way then the determinations will have to be carried out for each individual contractor. If the roles or terms & conditions ever change within the engagement then the determination will have to be carried out again to reflect the changes.

Q: Who pays the employer’s NI? Is it the client or the fee payer?

A: The deemed employer, i.e. the person responsible for operating PAYE on the payment, is the secondary contributor for NICs purposes.

Q: How are clients expected to practically manage the 45-day dispute period, particularly where a worker disputes their SDS and an Agency disputes separately and at a different time?

A: These would be two separate disagreements, each with their own 45-day time limit. However, as long as the reasons for the disagreement are the same the client could consider these as one and send the same response to both parties.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own lawyer, business advisor, or tax advisor with respect to matters written or referenced in this post. Survehub assumes no liability for actions taken in reliance upon the information contained herein.

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