The end of IR35 self-determination for most

The changes in IR35 determination rules in April 2021 brought about by the new off payroll working rules brought to an end the era where contractors decided their own employment status.

The legislation offers small businesses an opportunity to steal a march over their large competitors though.

In this article, we examine which businesses were excluded from the legislation and how they can turn that to their advantage to attract the most talented contractors.

To speak to IR35 determination specialists, please call CoComply on +44 (0) 203 051 9792, email [email protected] or fill out the form below.

Which types of contract still require contractor IR35 self-determination?

Throughout the entire history of IR35 up until April 2017, contractors were responsible for carrying out their own IR35 determination tests.

From April 2017, public sector bodies became responsible for determining their contractors’ IR35 status. Just a year later in the 2018 budget, the Government announced its intentions to extend this responsibility to private sector contracts.

After a year or so of lobbying, trade groups successfully secured an exemption for small employers. The law came into force in April 2021. It was now medium- and large-sized-business that would be responsible for determining the IR35 status of their contingent workforce.

What are your responsibilities as an employer?

For public sector employers and medium- and large-sized businesses, there are now“clients” and “fee payers” in all working agreements between companies/organisations and contractors (either working as self-employed through personal service companies and/or via recruiters).

Sometimes, clients and feepayers are the same company/organisation. When a contractor relationship is deemed within IR35, the fee payer must income tax, Employee National Insurance Contributions and, if applicable, the Apprenticeship Levy.

When a recruitment agency is involved, the company/organisation benefiting from a contractor’s services is the end client (responsible for creating the IR35 status determination statement (SDS) and delivering to all the parties involved in the supply chain) and the recruiter is the fee payer.

This is however not a straightforward area and we’ve written a guide to who is responsible for determining the IR35 status in public sector employers and medium- and large-sized businesses.

CoComply tip: Please take time to read this because, under the new rules, you’re expected to demonstrate reasonable care in determining a contractor’s deemed employment status. The financial risk has also moved from contractor to employer meaning that the fee payer is now responsible for paying income tax and National Insurance contributions retrospectively plus an additional fine if a contract is found to be within IR35 when it was claimed not to be.

What is the definition of a small business for IR35 purposes?

Your contractor will still be liable for IR35 self-determination if your company:

Has an annual turnover of £10.2m or less
Has a balance sheet whose total does not exceed £5.1m
Has had an average of less than 50 employees in the past financial year

Helping your contractor to comply

If IR35 self-determination still applies to your contractors, why invest own time and resources in helping your contractors to be outside of IR35?

Contractors hate IR35 and they’re more inclined to work with companies that help them keep more of the money they earn.

You’re NOT responsible for employment status decisions – that gives you a competitive advantage. You and your contractors can formulate agreements that fall outside the scope of IR35.

The key areas to consider when creating a contractor outside IR35 are:

Control – does the contractor have enough control over where, when and how they work? The more control you take over working practices, the more likely they will be within IR35
Risk – are they responsible for rectifying mistakes made from their own account?
Employee benefits – HMRC consider parking spaces, ID badges and use of staff canteens in a status assessment
Right of substitution – can you send someone else to do the work on your behalf?

CoComply tip: Resist the urge to use HMRC’s Check Employment Status for Tax online tool. IR35 rules by their nature are complicated and it’s better to work with an expert like CoComply. If we make a wrong call, our business insurance completely covers the fines your company will be liable for.

For further information

This is a complex area of employment law so it’s always better to get outside help.

CoComply can help you make the most of your advantage over larger businesses by creating working contracts and monitoring how they’re executed to ensure that contractors stay outside of IR35.

Small businesses now have much greater bargaining power with contractors because contractors can self-declare their work with you. You save money too plus you to add the skills, knowledge and tools you need to compete more effectively in the wider market through the expertise contractors can bring.