Uk Contractor market

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

Source: Express

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Halifax has adjusted its affordability and income criteria for contractors who work on an employed basis to reflect changes to government tax legislation under IR35.

IR35 rule changes came in this April to ensure contractors paid the correct tax if the work they carried out for a company resembled employment.

Under IR35, a person can be deemed as employed based on conditions including how easily they can be substituted, the provision of their equipment and how exposed the worker is to financial risk.

Halifax’s amendments are effective from 9 July and mean contractors can be treated as either employed or self-employed for income verification depending on their circumstances.

The general definition of a contractor includes those whose income comes from a contract, they pay their own tax, or they are employed via an umbrella company that deducts their tax, or they are workers who are essentially employed but are on a fixed or short-term contract.

Borrowers will be treated as self-employed by Halifax if they pay their own tax, they have more than one contract, or if they have set up a limited company which employs other contractors.

In this instance, income verification will remain in line with existing self-employed policy.

Halifax will deem clients as employed if tax is paid on their behalf by the company they work for or they are employed by an umbrella firm that deducts tax.

Borrowers will also be considered employed if they earn more than £500 a day or £75,000 per year. They are also classed as employed if they are IT contractors on any income, regardless of the tax structure or if they consider themselves to be self-employed.

This follows a recent ruling where an IT contractor working for Nationwide had to pay £74,523 in income tax and National Insurance Contributions after losing an appeal to be deemed self-employed.

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The only exemptions for those earning more than £500 a day, £75,000 a year or IT contractors will be borrowers with more than one contract or those who have set up a limited company that employs other contractors.

Customers will also be considered employed if they have 12 months or more continuous employment, with six months of the contract remaining. People who have two years of continuous services in the same type of employment will also be treated as employed, as per existing Halifax criteria.

Contractor income verification

Where a contractor is considered employed for income verification, this will need to be checked either with a copy of their latest contract and payslip, or bank statement if a payslip is not issued.

The income will be calculated based on a 46-week year.

The lowest figure of either the calculated gross value of the contract or income will be used for affordability.

Those who work on a fixed or short-term contract or through an agency where tax is deducted by the employer who is not an IR35 umbrella firm will have to show their latest payslip to evidence income or last three payslips if other income is being used.

Members of the construction industry must provide the last three months’ payslips and corresponding bank statements, and an average will be calculated.

There will be no changes to income verification for borrowers on a zero hours contract.

Updates will apply to full applications submitted from 9 July. Any decision in principle entered before this date then submitted as a full application after Friday will be subject to the new criteria.

Further advances submitted after this date will also be subject to the changes.

By Shekina Tuahene

Source: Mortgage Solutions

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At this 11-week point since private sector IR35 reform applied, there are quite a few studies, surveys and snapshots doing the rounds, all trying to evaluate the impact of the off-payroll rules with particular focus on how many are inside IR35, how many are outside and how many have been forced into umbrellas, writes Kate Cottrell of status advisory Bauer & Cottrell.  

Studies, surveys and snapshots (cont.)

We are less than two months in and to use a phrase that is a favourite of HMRCs “we have heard anecdotal comments, but we have no evidence.”

At this still early stage, the findings of the studies are limited, as to who took the time to complete them, and the nature of the business asking the questions (are they a contractor membership body, an accountancy practice specialising in contractors or an agency with the same specialisms?)

I think you could ask both contractors and every provider of services to contractors what they are seeing and without doubt, there will be horror stories — those out of contract; those forced to contract in a particular way, those that have been treated well and fairly, those in no man’s land still awaiting the result of their status appeal. And even sadly, those who are still unaware of the whole thing!

These studies, surveys and snapshots will undoubtedly assist those that undertook them to make their case to government and it will be interesting to see the picture when we are further down the line.  

The use of tools

At present, there are some tools to decide IR35 status which will have a very accurate picture of the results of the reform thus far.  However, many I have seen do not do a proper job at all — with the worst testing tools just giving indications of the likely status. These indicators are of no use to anyone. 

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CEST

As we know all too well, HMRC regularly quotes the millionsof times CEST has been used and, as with any statistics of this type, the department paints the picture that such numbers mean that the tool is ‘really successful.’ 

In reality, these are just numbers with no account being taken of folk using CEST over and over again until they achieve the right result — or the most worrying aspect of the result that gives the answer “unable to determine”.

Even non-users know that CEST does have its limitations and arguably, it is not fit-for-purpose. There is currently no requirement to even identify the parties to the engagement!

HMRC have said they will stand by the results of CEST providing that the information input is accurate and herein lies an aspect of CEST, that needs great care.  Unless you are 100% certain that it has been completed accurately, then reliance upon its results is not recommended.    

When can we expect anecdotes to become facts?

HMRC will have a very clear picture of the impact of the rules during and after the end of the tax year.

1. Information on those inside IR35 is being returned to HMRC via RTI – ‘tick the box please.’
2. Information on any contractor working via an agency and being paid gross (outside IR35) is also returned to HMRC by way of the Intermediaries Reporting requirements.
3. Self-Assessment returns will pick up outside IR35 contractors that do not fall within 1 or 2 above.

These 3 channels will provide the bulk of IR35 reform facts to HMRC.

How will the facts be viewed?

I hope we have moved some way since HMRC claimed (based on very dubious research) that the reform was a resounding success in the public sector.

Yes, the Revenue will have an awful lot of data and we can only hope that this will be presented in a fair way, rather than like the past when it was presented to support the introduction of the reform – à la ‘we were right to do this – look how much tax and NIC we have collected.’

As always, the difficulties will arise if no account is taken of behaviours. Without this, the facts will belie the truth. HMRC will need to identify industry sectors and the stances taken by end-clients, especially the large ones. These include:

• Blanket bans i.e. ‘no more PSCs’
• Blanket Umbrella-only contractor usage.
• Blanket Inside IR35 decisions i.e. ‘all PSCs are caught.’
• Incorrect decisions, changed on appeal

If the contractor industry and the wider business community like UK PLC are to have any faith in the system HMRC /HMT must not just add up the totals and claim a resounding success — however tempting that might be for them. Instead, account should be taken of the effects of the Covid 19 pandemic on the new rules. Many businesses have behaved differently as a result. This includes many contractors who have been put out of business owing to lack of support from HM Treasury.

Everyone needs to carry on and continue to keep evaluating the impacts

It’s not a popular action to endorse but end-clients may need to return to their invariably commercial-led decisions to ban PSC contractors. All other intermediaries such as agencies and umbrellas may need to change tack on their operations. Contractors should understand the new rules and challenge unfair or poorly made decisions wherever possible. Finally let’s keep the studies, surveys and snapshots coming regularly, collecting the information that will turn anecdotes into reliable facts.

Written by Kate Cottrell

Source: Contractor UK

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