IR35 tax rules: how to comply and not fall foul

IR35 is coming for small to medium enterprises (SME) in 2020. There is no uncertainty of the date set for 6 April 2020. Have you put arrangements in place to correctly identify the status of the people who work for you: are they employees or contractors?

Furthermore, if you feel this is all unnecessary paperwork, here is a cautionary tale that happened this week. HMRC won an IR35 case against three BBC presenters, who must now pay hundreds of thousands of pounds worth of back taxes.

IR35 means business

The ramifications of ignoring IR35 to business and workers is not new news. The legislation was introduced in 1999 as part of the Finance Act 2000 to combat what HMRC described as “disguised employment”.

Currently, SME is exempt from this kind of people management scrutiny, but all that changes next year.

However, HMRC is serious about cracking down on what they perceive as non-compliance with the IR35 rules. For this reason, if you do absolutely nothing the risk is high. As a consequence, you will become responsible for paying the tax and NI contributions of the worker.

IR35 workers

How to get ready for IR35

In view of IR35 impacting organisations, we have business essential services support through My Business Advantage. Members can receive professional HR support through documents to stop your business falling foul of IR35 rulings.

Here the experts Doc Wizard provide some top tips on complying with IR35.

The ‘dos’ to dealing with IR35

  • Ensure that you have appropriately reviewed all your workers and established clearly which ones are employees and which are contractors, or contractors working through an agency. You will need a clear list of names to work through to review their status under the new off-payroll rules.
  • Do consider what preparation you need to do and the information you need to communicate with your workers following an IR35 review. What if a worker’s status changes from contract to employee? Do you want to re-negotiate their terms and conditions? The impact may increase costs to your business (namely, employer’s NI).
  • Don’t assume that you know the status of the worker! We recommend using the CEST tool to check your worker’s working-status. HMRC says it stands by the CEST result (providing the data that was input is accurate!)
  • Be aware that you will need to take reasonable care to follow the rules in coming to your decision. You will need to keep detailed records to justify your decision and the reasons for it so that you can defend any decisions in the event of an investigation by HMRC.
  • Don’t base your assumptions about the working practices on the contractual arrangements – contractual agreements mean nothing if they don’t reflect reality. Base your decision on the fact of the working relationship, not the one documented in the contract.
  • Do remember that the CEST tool will only work out a worker’s status for tax purposes. It has no bearing on whether they are likely to be regarded as an employee. The two are entirely different distinctions make sure that you (or your managers) know the difference.
IR35 human resources checking worker's status

The ‘don’ts’ to dealing with IR35

  • Don’t ignore this until April 2020! It will take time to review your workers status in your business model. Time to establish which ones are inside and which are outside IR35. You will need to start the process now to ensure that you have plenty of time to prepare. Don’t underestimate the amount of time this may take!
  • If you have decided that an employee is inside IR35 and then they raise a dispute with you, saying that they disagree with your decision – do not ignore their dispute. You have just 45 days to review your decision and inform them of your decision following the review. The penalty, if you don’t, is that you will become liable for paying the worker’s NI and tax (if you aren’t already).
  • Don’t assume that you already know what the status of your workers is. The CEST test is a very blunt instrument which places undue weight on particular aspects of the relationship. You may well find that workers you previously assumed were contractors are regarded as disguised employees under the new CEST test.
  • Don’t forget to review your budget, as many workers’ status may change after the IR35 review. You will now have to pay their tax, NI and employer’s NI.

If you need a checklist/guidelines and understand more about the CEST tool Doc Wizard has all the know-how and documents to cover your business. You can access instant HR documents all written by HR professionals.

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