Time Is Running Out to Prepare for the New IR35 Changes
IR35 changes will mean that medium and large-sized end clients will bear the responsibility of deciding if a contractor is inside or outside IR35. If a contractor is deemed as inside IR35, they will pay the same income tax and National Insurance (NI) as a regular company employee. If a contractor is deemed as outside IR35, they will be able to be paid through their Personal Service Company (PSC). These new changes are in response to disguised employees, who are contractors being paid through their PSC to avoid paying tax when they are working as a permanent employee for an end client company.
Preparing for IR35 is difficult, so below, we have laid out the responsibilities for end clients and recruitment agencies under the new IR35 rules.
Do the New IR35 Changes Apply to Small-Sized End Clients?
An end client is an organisation or company in need of the services of a contractor. It is worth noting that small-sized end clients will be exempt from the new IR35 changes. If an end client company meets two out of the three conditions shown below for a small-sized company, the new IR35 changes will not apply to them, and the responsibility of determining IR35 status will stay with the contractor’s limited company.
The criteria for a small-sized end client is:
- An annual turnover of no more than £10.2 million,
- A balance sheet total of no more than £5.1million,
- No more than 50 employees.
Although small end clients will be exempt from the new IR35 changes, they must confirm their size whenever asked by contractors or recruitment agencies, so these parties are aware of what rules apply.
The Responsibilities of Medium and Large-Sized End Clients Under the New IR35 Rules
If an end client does not meet the conditions for a small-sized business, then the new IR35 changes will apply to them from April 6, 2021. The new rules will mean that end clients will bear the responsibility of determining the IR35 status of every contractor they use.
Once an end client has determined the IR35 status of a contractor, they must complete a written Status Determination Document (SDS). An SDS is a detailed statement completed after an IR35 assessment, stating why an end client has decided an IR35 status for a contractor. An end client must always pass the completed SDS onto a contractor and recruitment agency. While completing an SDS, end clients must also make sure they take reasonable care when making their determination.
Apart from determining IR35 statuses end clients are also responsible for:
- keeping detailed records of their employment status determinations, the reason for their determinations and the fees paid for a contractor.
- Having a process in place to deal with any disagreements that may arise from their determinations.
- Confirming the size of their company whenever asked by a contractor or recruitment agency.
The Responsibilities of Recruitment Agencies Under the New IR35 Changes
A fee payer would be defined as the entity in the labour supply chain, paying a contractor for the work they have completed. Taking this definition into account, a fee payer would usually be a recruitment agency.
To be classified as a fee payer, recruitment agencies must meet the following qualifying conditions:
- Be a resident in the UK or have a place of business in the UK,
- Pay an intermediary that is controlled by the worker, e.g. PSC,
- Not be controlled by or hold a material interest for a contractor, related to a status determination.
As a fee payer, once you have received a status determination from an end client, your responsibilities under the new IR35 changes will include:
- Calculating the deemed direct payment to account for employment taxes and National Insurance contributions associated with an assignment contract.
- Deducting employment tax and employee National Insurance contributions from payment to a contractor’s intermediary.
- Paying employer National Insurance contributions.
- Using Real-Time Information (RTI) to communicate to HMRC all the taxes and National Insurance contributions deducted.
- Applying the apprenticeship levy and make any necessary payments.
Under the new IR35 rules contractors and recruitment agencies can challenge the IR35 determinations of an end client and provide supporting documentation to explain their challenge. Upon receiving a status determination challenge, an end client will have 45 days to consider your challenge. End clients can decide to keep the same determination and provide their reasoning or carry out another assessment and change the IR35 status determination.
To ensure you are prepared for IR35 ahead of time, agencies should:
- Speak to all end clients and ensure they provide you with a clear SDS for all contractors.
- Pay close attention to IR35 determinations sent by end clients and challenge this if you disagree with the SDS.
- Ask the size of all the end client companies you work with so you know whether they must apply the new IR35 rules or if they are exempt.
How Can Unified Payroll Help Agencies Prepare for the New IR35 Rules?
If you are a recruitment agency looking at the fee payer responsibilities listed above, you may be stressed thinking about how your agency is going to manage all these responsibilities. The duties listed above do not need to be your headache as Unified Payroll can step in and take away the burden of paying your candidates under IR35 rules.
Unified Payroll is a compliant Pay As You Earn (PAYE) umbrella payroll company specialising in employing and paying contractors inside IR35. We are an expert payroll service provider, so recruitment agencies can use our payroll service to pay their candidates in a way that follows IR35 and HMRC guidelines. Our payroll service will save your agency time and money while we deal with the complexities of contractor payroll.
Our payroll service takes away the burden of IR35 because we:
- Manage the entire contractor payroll process, saving your agency time and money while giving peace of mind.
- We are a compliant umbrella payroll company so you can rest assured that our payroll service follows IR35 and HMRC guidelines
- Have a payroll team that is Chartered Institute of Payroll Professionals (CIPP) qualified, so payroll is always processed by qualified experts.
- Have an expert sales team that consults with you and answers questions about IR35, HMRC guidelines or any other legislation.
- Run multiple pay runs daily using same day faster payments, to make sure your candidates are paid on time, every time.
- Understand the temporary employment market and follow best practice while working with the best employment lawyers.
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