Construction Professionals: Here Is A Q&A Session About IR35 Changes – Part 1

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 1 article, we provide Questions and Answers from the webinar session.

Q: How should the status determination test be carried out?

A: ­­Clients should consider exactly the same employment status indicators, just as they would if they were deciding if a worker without an intermediary should be employed or self-employed

Q: Will IR35 be postponed again due to Covid?

A: The changes to the off-payroll working rules have already been passed through Parliament in the Finance Bill 2020 to come into force from 6 April 2021.

Q: What is the difference between ‘off-payroll’ working and IR35 and PSC?

A: An engagement is within the scope of the off-payroll working rules where an individual is engaged via an intermediary. A PSC is an example of an intermediary.

Q: If a person falls under IR35, can they switch to become self-employed?

A: Self-employment or employment is something that is decided by the contractual terms and conditions and working practices of an engagement. An individual can go from inside the rules to outside if their terms and working practices change.

Q: If a UK end-client contract with a UK self-employed sole trader whose agency is in another EU member state do we have to carry out an IR 35 assessment on the agency/contractor?  Would the answer differ if the UK contractor had a UK PSC?

A: ESM10025 Provides guidance on dealing with international arrangements. 

Q: Are the companies under obligation to present the Status Determination Statement to HRMC or is it enough to present it to the worker?

A: The client is required to pass the Status Determination Statement (SDS) to both the worker and the fee-payer, the entity in the supply chain who pays the workers PSC if any.

Q: What are the consequences of making a false determination of the worker’s IR35 status?

A: If a client deliberately gets the status decision wrong, this would not be taking reasonable care and the client would be liable for any tax and NICs due.

Q: Will LLP/partnerships who are the intermediary be caught by the changes where the worker is a member/partner in that partnership and their services provided to a medium-sized organisation?

A: Yes, partnership/LLPs can be within the scope of these rules if a member/partner provides services to a public authority or medium/large-sized client.

Q: If we engage a UK self-employed sole trader who does not have a PSC are they outside the scope of IR35?

A: If an individual supplies their services directly without the presence of an intermediary, normal employment status principles will apply.

Q: If we are a multinational company as a client but we have an overseas company as part of our group who engages with a UK PSC, does our overseas company have to do the test because it is “connected” to our group.  What is the definition of “connected”?

A: An overseas company has a UK connection if it is resident or has a permanent establishment in the UK. If the worker has a UK liability to tax and the company has a UK connection it should consider the off-payroll rules.

Q: Will the off-payroll working rules ever apply to a sole trader working for a small company? What if a sole trader works only for one company but is paid as a sole trader? Is it ok for the sole trader to account for his tax as all other sole traders do?

A: The off-payroll working rules apply to individuals supplying their services via an intermediary, If an individual supplies their services directly without the presence of an intermediary, normal employment status principles will apply.

Q: Is there a timeframe in which an SDS should be provided by a client?

A: The SDS needs to be passed on before a payment is made, as a failure to pass on the SDS will result in the client being responsible for the deduction of tax and NICs. ESM10012 provides more detail on Status Determination Statements.

Q: If an end client decides to not use CEST but another third party determination tool? Does HMRC consider that to be taking reasonable care?

A: ESM10014 contains guidance regarding Reasonable Care contains a reference to CEST and ESM10013 contains reference other third-party tools.

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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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