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Although the coronavirus pandemic and Brexit have been the big news over the last year, the biggest change to contractor working practices, IR35, is now here. But what is changing with the off-payroll reforms? And what are the key IR35 status tests?
Who will be affected by the IR35 reforms?
From the 6 th April 2021, the liability for your IR35 status, and making the correct payments for tax and national insurance, will shift to the fee-payer. This is the case for all engagements for medium and large-sized businesses, as defined by Companies Act 2006. For engagements that have started prior to this, or if you work for a small business, then the liability would still remain with you. HMRC defines that a small business would have at least 2 of the following measures:*a turnover of £10.2 million or less;*£5.1 million or less on its balance sheet;*50 employees or less.
How will my IR35 status be checked?
For engagements starting after the 6th of April 2021, your end client will determine your IR35 status. They may use an IR35 status tool to assess if you are to be deemed inside or outside IR35, or they may accept an assessment you have completed yourself for the contract.Ultimately, the decision will be up to your client. They may use one of the following status tools to assess your status.*The CEST Tool (Check Employment Status for Tax) is HMRC’s free tool. These can be used by anyone, so both contractors and end-clients are able to check the status of an engagement. The tool, although a good starting point, has been heavily criticised. 1 in 5 contractors who use the tool get an indeterminate result and, in this case, the only option given is to call HMRC. The tool also has little focus on one of the three key IR35 status tests, Mutuality of Obligation.* An automated tool or manual tool from another provider. Automated tools give a quicker result but can get stuck if your engagement is not clearly inside or outside IR35. Meanwhile, a manual tool would ensure a more comprehensive review as your engagement would be reviewed by a human professional. However, due to the extra time required to review every case, these are usually slower and more expensive.* A hybrid tool, such as Kingsbridge’s Status Tool, offers the best of both; anautomated tool with manual intervention by an IR35 expert team for anyindeterminate results.If you worried about your IR35 status or how you will be assessed for your status determination statement (SDS), you should talk to your fee-payer. If they are using one of the tools above to ascertain your status, this will be heavily reliant on the key status tests.
What aspects of my contract will be assessed for IR35?
Mutuality of Obligation, Substitution and Control are the key IR35 status tests, based on previous law. Although there are many other tests used, these typically have the most weighting. We’ve provided a brief summary of these key tests below.
* Mutuality of Obligation (MOO), is the first of the key IR35 status tests. MOO has played a big factor in the IR35 results of previous case law, particularly in high profile cases such as TV presenter Helen Fospero. For MOO to be absent, and therefore point to you being outside IR35, you are under no obligation to accept further work from your client once the engagement is finished. Equally, your client should not feel obligated to offer you further work once the current engagement has ended.*Right to Substitution, also referred to as ‘lack of personal service requirement’, means that in the event that you are unable to complete the work, you would be able to send in a replacement. Choosing and paying for the substitute yourself would point towards self-employment. This would need to be stated in your contract.*Control is just as important when assessing your IR35 status. If your client is doing things like micromanaging you or specifying the times you work, this would point to being inside IR35, as they have too much control over the way you work. This would of course depend on your engagement.
Placed inside IR35? What it will mean for contractors.
If you are deemed inside IR35 by your fee-payer, this means that you then will be taxed at source, just like if you were an employee of the business. As your contract and SDS point to you being a ‘disguised employee’, you will pay income tax and employee’s NIC’s. Both of these would be automatically deducted from your payslip.
From the 6th of April, whoever is dealing with your SDS will need to have an appeal process set up, so in the event that you don’t agree with your SDS, you can appeal it. They will have up to 45 days to review your status but are not obligated to change it.
What if I want to check my IR35 status?
CEST, fully manual and fully automated tools are all available for you to check your IR35 status. Another option you could consider is Kingsbridge’s award-winning hybrid tool. For just £50 plus VAT, you will get an instant result (if inside or outside) which you can send to your fee-payer/end client. If the result is borderline, it will be passed to Kingsbridge’s IR35 experts for manual review – who will provide your determination and report. Purchase a review today here for just £50 plus VAT.