IR35, formally known as off-payroll working rules, are a tool used by HMRC to check whether a contractor is genuine. Some instances will arise where contractors are being “disguised” as employees for tax purposes, and thus IR35 is in place to ensure everyone pays their fair share. While the changes were first due to be introduced in April 2020, they were delayed by a year as a result of the COVID-19 crisis.
Despite this delay, many Britons are still confused about who is now affected and how.
Businesses, contractors and the self-employed have all posed questions about IR35 matters.
To gain further insight, Express.co.uk spoke to Andrew Oury, tax expert at partner at Oury Clark.
He said: “The changes in the IR35 rules brought about in recent years and extended to the private sector in April have not been universally well-received.
“With responsibility for setting IR35 status – and therefore liability – shifting, many have raised concerns about the potential for huge tax bills in the event the client makes the wrong decision.
“Recognising if IR35 applies will come down to analysing your relationship.
“If your relationship with your customers looks like employee and employer for income tax purposes, then IR35 applies.
“If the relationship looks like a self-employed contractor and a customer, then IR35 does not apply.”
However, Mr Oury urged all Britons to take particular caution when it comes to IR35 decision making.
This is because each contract will be different, and therefore a separate IR35 decision will need to be made on each one.
This, he said, has the potential to create a “minefield” of decision making when it comes to IR35.
IR35 rules will not apply in a number of circumstances, and these will be important to check.
If an organisation is not a UK limited company, for example, and is not supplying services to a client who is a limited company, IR35 will not apply.
If those doing the work concerned do not own more than five percent of the limited company, and the worker is not employed by the company concerned – similarly IR35 will not apply.
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However, there will be many circumstances where IR35 does have to be taken into consideration.
This burden now lies with the client who must determine themselves if IR35 applies to the situation.
The matter is complicated by the fact there is no single test to determine employment status for tax purposes.
As a result, then, a number of factors will have to be considered when it comes to decision making.
However, in an attempt to reduce this level of uncertainty, Oury Clark has developed an infographic flow chart which allows Britons to answer specific questions about their circumstances.
It is hoped this will provide further clarity to those who are currently dealing with IR35.
In a similar way, HMRC has developed a tool known as Check Employment Status for Tax (CEST).
But it is worth noting some experts have criticised the tool for failing to provide a response in some circumstances.
Responding to this recently, HMRC told Express.co.uk: “In the vast majority of cases, the free CEST tool will determine the worker’s employment status for tax and NICs. In the minority of more finely balanced cases, CEST will give an undetermined outcome.
“To reach a view in all cases HMRC would need to add more complex questions, increasing the burden of using the tool for the majority of users. HMRC has recently launched an enhanced customer support offering where users can speak to an online adviser for help whilst using the tool.”
By REBEKAH EVANS
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