The Government has confirmed that there will be no more delays, so on 5 April 2021 new IR35 rules come into force for private sector businesses. This article sets out some key considerations to be made in the coming weeks and the necessary actions companies should take to ensure they remain compliant with the new legislation and avoid and potential financial issues.
SEE BDO'S OFF-PAYROLL LABOUR TOOLS
Given the short amount of time until the new legislation is effective, it is important that companies take action immediately to ensure that they are compliant with the IR35 rules. For companies that put their process and procedure actions on hold when the original legislation was delayed, it is vital to ensure these are now finalised and ready for April 2021.
HMRC have continued to test practices relating to the employment status of individuals, i.e. those engaged directly on a self-employed basis, to ensure taxes are correctly paid/withheld. For all contracts in force on or after 6 April 2021, HMRC further expects employers to consider IR35, the intermediary rules and the offshore host employer rules. Therefore, they have introduced new guidance into the Employment Status Manuals.
While the IR35 rules come into force on 6 April 2021, it is important to bear in mind the new legislation is applicable to payments made under contracts from April 2021. This includes agreements that were entered into prior to this date. Therefore, when undertaking any contract renewals for agreements that will extend beyond April 2021 the new rules must also be considered. This make it imperative to ensure that the IR35 impacts on ‘self-employed’ engagements is considered now when agreeing terms with contractors, which may include undertaking employment status assessments to determine the likelihood of the new IR35 rules applying.
Status Determination Statements
As part of the employment status assessment process, end users must prepare and provide a Status Determination Statement (SDS) to the third party worker or the organisation that the company has a contract with. The SDS must include details of the employment status decision reached as well as the reasoning behind the conclusion. This conclusion must set out the relevant employment status indicators assessed and be appropriately justified based on the engagement, rather than a blanket determination.
This point is particularly prevalent as HMRC have repeatedly iterated the point that ‘reasonable care’ must be taken when making the determination regarding the employment status of a worker. Failure to take reasonable care would likely result in end user being liable for any income tax and NIC that should be operated on the payments made to the worker. Further detail on what HMRC constitutes as reasonable care and the potential issues with getting this wrong can be found here.
As well as preparing the SDS forms and providing these to the other entities in the engagement chain, the end user must keeps detailed records of the determinations they have made, including the reasoning behind the decisions and details of the totals fees paid. Furthermore, there should be adequate procedures in place to deal with an appeal should the worker disagree with the determination made.
BDO’s Off-Payroll Tracker will help you decide when an individual contract will fall within the new rules (requiring a status determination to be made) or whether it will fall under the agency rules. It will also help you record details of every contract and document any formal status determinations that are made as well as track the appeal process where a contractor disputes the decision.
Using BDO’s Off-Payroll Tracker will give a clear audit trail (exportable to Excel) to prove to HMRC that reasonable care has been taken with regards to engager responsibilities as well as demonstrating good employer compliance processes as part of wider SAO/CCO obligations.
We also offer another tool to help manage the impact of IR35 and provide vital assistance in establishing contractor population.
Working from purchase ledger entries, BDO’s Off-payroll Risk Manager can help easily identify contractors and pick out the high risk cases for individual review. The tool will then break contractors down into groups including personal service companies, self-employed contractors and agency workers to help manage risk without having to spend huge amounts of time reviewing individual purchase orders from the supplier population.
See both our off-payroll tools .
If you have any questions regarding the new IR35 legislation or would like to discuss BDO’s tools and how these can help your business, please get in touch with your usual BDO contact or Stephanie Wilson.