Employers are being urged to avoid potential confusion when it comes to IR35 rules. Responsibility for deciding a contractor’s employment status now rests with the end user.
The off-payroll rules were previously rescinded in Kwasi Kwarteng’s Mini-Budget but were reapplied by Jeremy Hunt, several weeks later in the Autumn Statement.
IR35 is tax legislation designed to deal with a form of tax avoidance known as disguised remuneration, where individuals attempt to avoid paying the full rate of Income Tax and National Insurance Contributions (NICs), by providing their services through an intermediary, such as a Personal Service Company (PSC).
IR35 rules, which were originally reformed in April 2021 in the private sector, exist to ensure that an individual providing services via a PSC, and who would have been an employee if they were providing their services directly to an end client, pay broadly the same income tax and NICs as a ‘regular’ employee would.
Under this legislation, all medium and large-sized private sector end clients are responsible for deciding a contractor’s employment status, as opposed to previous rules, where freelancers decided their employment status themselves.
The official guidelines for businesses affected by these rules are as follows:
- Pass your determination and the reasons for the determination to the worker and the person or organisation you contract with
- Make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid
- Have processes in place to deal with any disagreements that arise from your determination.
If the determination results in a contractor being within the IR35 rules, it is your responsibility to deduct and pay tax and National Insurance contributions to HM Revenue & Customs (HMRC) via PAYE.
Where an employer fails to correctly identify a disguised employment scheme, the worker’s tax and National Insurance Contributions become their responsibility.
If you have any IR35 queries, please contact our payroll team today.