IR 35 Intermediaries Legislation 1 Summary Applies to

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IR 35 Intermediaries Legislation 1

IR 35 Intermediaries Legislation 1

Summary • Applies to payments made from 6 April 2017 • Public Sector bodies

Summary • Applies to payments made from 6 April 2017 • Public Sector bodies • BSU to determine whether deemed employment relationship (likely to include consultants and any supply of staff) • Where Intermediaries legislation applies, BSU accounts for PAYE @ basic rate, Employee NIC and Employer NIC on payments made to Joe Bloggs Limited • For staff supplied by agency – as bullet 3 above, but Agency accounts 2

Impact • Payroll costs – Income tax, Employees NI, Employers NI • Apprenticeship Levy

Impact • Payroll costs – Income tax, Employees NI, Employers NI • Apprenticeship Levy (0. 5% of payroll) • Interest and Penalties where applied incorrectly • RTI Reporting – Payroll • HESA Staff Record? 3

Establishing Employment Status for Tax purposes • Substitution – • Right of Control –

Establishing Employment Status for Tax purposes • Substitution – • Right of Control – • If the contract states a set number of hours per week to be worked with an hourly rate and the contractor does not have a defined deliverable within a specified period, or a clause stating that mistakes must be rectified in the contractor’s time, then the contractor can be deemed not to be taking a financial or business risk. This implies the contractor is not in business in their own right and is probably a disguised employee. Equipment – • A key test of employment, and therefore IR 35 status, is whether the contractor is controlled by the client. If the contract includes a clause that paints a picture of control, and may even include a statement confirming the contractor is under the direction and control of the client, there is a greater chance that the contract will be found to be inside IR 35. Financial risk – • A key test of employment says that if a contractor is not allowed to send a replacement, or substitute, to take their place to deliver the contract, this probably means that the contractor is really an employee. Some contracts include a clause specifically disallowing a right of substitution, potentially putting the contract inside of IR 35. A contractual requirement for the contractor to use only the client’s equipment onsite could be interpreted as a lack of financial and business risk, particularly if the contractor has not bought any equipment of their own through their contractor limited company. This can be a reason for a contract to fall within IR 35, but only usually in conjunction with other factors Part and parcel of organisation e. g. e-mail address – If the contract specifies things like the contractor being allocated their own office, or is integral to the management chain of command with a manager and possibly staff of their own. 4

HMRC Employment Status Service (ESS) • • New HMRC tool : https: //www. gov.

HMRC Employment Status Service (ESS) • • New HMRC tool : https: //www. gov. uk/guidance/check-employment-status-for-tax • • New guidance: https: //www. gov. uk/guidance/off-payroll-working-in-the-public-sector-reform-ofintermediaries-legislation • A number of question based on personal service, control, financial risk, part & parcel of organisation • Output is on-screen decision that can be saved as pdf. • HMRC will abide by decision if correct information provided 5

Summary Payroll Obligations • • • PAYE & NIC deductions to be made from

Summary Payroll Obligations • • • PAYE & NIC deductions to be made from Invoice value, net of VAT, and excluding cost of materials (but not home to work commuting costs) Payroll to issue P 45 to worker No obligations for the Payer – – – – Statutory Sick Pay Statutory Maternity/Paternity/Adoption pay Statutory redundancy pay NMW/LW Pension auto-enrolment Pension contributions Annual leave BUT BSU must respond to queries relating to employment status within 31 days or it is deemed to be the payer 6

Establish Current Position • • Identify who engages off-payroll workers Identify at risk engagements

Establish Current Position • • Identify who engages off-payroll workers Identify at risk engagements – including agencies Review supplier lists Create New Supplier form Communicate with suppliers – ask suppliers to clearly identify materials and expenses on invoice Review engagements and consider deducting employers NIC from invoices up to 13. 8% where appropriate, and Apprenticeship levy 0. 5% Payment terms – invoices need to be processed promptly 7

Process • • Before contract is agreed manager asks contractor to complete new supplier

Process • • Before contract is agreed manager asks contractor to complete new supplier form The manager then completes HRMC ESS check using information from new supplier form If ESS states “unable to determine tax status” – discuss with Finance Print record of assessment – save as. pdf Send assessment. pdf to [email protected] ac. uk New supplier created Manager notifies contractor of IR 35 status For deemed IR 35 contractors, manager asks contractor to provide: – National Insurance number – Date of birth and personal address – Bank account details • • Order raised and invoice approved as normal Prompt approval of invoice required to ensure timely payment 8

Implications • What does it mean for contractors caught by IR 35? – Pay

Implications • What does it mean for contractors caught by IR 35? – Pay tax and NIC earlier than would normally do – May feel that they end up paying more tax – because as a company they may be able to off-set other expenses (capital allowances etc. ) – Pay and TAX/NIC deductions will be included in workers self assessment tool – There will be no double taxation • If IR 35 applies Contractors may: – Accept the deductions as an inevitable consequence of government changes in taxation rules – Increase their fees to BSU – No longer wish to work for BSU 9

Assessment - A 10

Assessment - A 10

Assessment - B 11

Assessment - B 11

Assessment - C 12

Assessment - C 12

Payment example - A 13

Payment example - A 13

Payment example- B 14

Payment example- B 14

Payment example - C 15

Payment example - C 15