Read on below for a guest post from Kingsbridge Contractor Insurance.
The 6th of April IR35 reforms have now passed and that can only mean one thing for contractors, fee-payers and end clients – IR35 is here. In the blog, we review the changes to off-payroll that will come into effect in April, the different types of status tool, and what contractors should expect now he legislation is here.
What are the off-payroll reforms?
For all engagements that start on or after the 6th April 2021, the liability for your IR35 status will shift to your fee-payer, if you are working for a medium or large client (as defined by Companies Act 2006). If your client is a small business, then the liability would remain with you. In order to be a small business, at least two of the three criteria below must be met:
- a turnover of £10.2 million or less;
- £5.1 million or less on its balance sheet;
- 50 employees or less.
Will my IR35 status be assessed by CEST?
Your client will assess your IR35 status, and then place you inside or outside IR35. This may be done by looking at your contract and/or working practices themselves, or by using a status assessment tool to guide their decision. There are many IR35 status assessment tools out there, including CEST. We have broken down the most commonly used ones below:
- HMRC’s free tool, Check Employment Status for Tax (CEST) is available for contractors and end-clients to check their status, free of charge. The tool has been criticised as 1 in 5 contractors who use the tool get an indeterminate result and in this instance, the only option available is to call HMRC. The tool also has little weighting on one of the three key IR35 status tests from case law, Mutuality of Obligation (MOO).
- If you or your end-client wanted to use an IR35 status tool fully assessed by a human professional, this would be a fully manual tool. The advantage of this method is you would not get an indeterminate result, however, due to the extra work involved, this method is typically more expensive, and it can and most likely will take longer to receive a result.
- Alternatively, there are other online questionnaire tools as well as CEST which you can pay to use. Although quicker than a manual tool, just like CEST, it can leave you stuck in the event of an indeterminate result.
- Another option is a tool that combines the best of automated and manual with a hybrid tool, such as Kingsbridge’s Status Tool. A tool like this would be completed online, with manual intervention by an IR35 expert team for any indeterminate results.
If you are unsure about how your client will assess your IR35 status, you should contact your client to enquire about this. For engagements starting from the 6th of April, you will be given a status determination statement (SDS) for your engagement. Should your client use a status tool to determine your IR35 status, the key IR35 status tests will more than likely swing your status one way or another.
What aspects of my contract will be assessed by IR35?
The key status tests are Mutuality of Obligation, Substitution and Control. Although there are many IR35 tests, these are seen as the key ones based on previous case law.
- Mutuality of Obligation often termed as MOO, has been key in previous case law. For MOO to be absent, your client should not feel obligated to offer you further work once the current engagement has ended. Equally, you are under no obligation to accept further work from your client once the engagement has finished. Being able to show this can help point towards being outside IR35.
- Right to Substitution, also called ‘lack of personal service requirement’, is another of the key status tests. In the event you are unable to complete the job, you should be able to send a suitable candidate in your place. Having this specified in your contract, and paying for the substitute yourself in this scenario, would help your case for being outside IR35.
- Control is just as important as MOO and right to substitution. For control to be evident and thus pointing your status towards being inside IR35, your client would have quite a lot of control over your working practices. This can include things like specifying you work specific hours and micromanaging your duties, but it would ultimately depend on the details of your engagement.
What impact will an inside IR35 determination have?
For engagements starting after the 6th of April, if you are deemed inside IR35 then you will be taxed at source. You will be taxed in the same way as if you were an employee of the business, as your SDS points to you being a ‘disguised employee’. You will therefore have to pay income tax and employee’s NIC’s, both of which will be automatically deducted from your payslip.
If you think the SDS that you have been provided with is not accurate, or you aren’t happy with the decision, you can appeal the decision to whoever is dealing with your SDS.
They will have up to 45 days to review your status but are not obligated to change it.
What can I do to check my IR35 status?
If you want to check your IR35 status yourself, you could choose from one of the many tools available on the market. If you want the best of both an automated and manual tool, one option available to you is Kingsbridge’s award-winning hybrid tool. With the tool, you will get an instant result, and if the result is borderline, it will be passed to their IR35 experts for manual review – who will provide your determination and report. This review is currently FREE for Integro clients (usually priced at £50).
Written by Kingsbridge Contractor Insurance.