The Implications of Being Inside IR35

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Your role as a recruiter is multi-faceted, interviewing candidates, building new business and account managing your existing clients are all part and parcel of your day to day role. With reform to IR35 fast approaching, understanding the trials and tribulations of tax law can be one step too far.

But don’t worry, we’re here to help. In our simple guide we explain what the implications of falling inside IR35 are and what this could mean to you and your contractors.

What does inside IR35 mean?

When a contractor’s assignment is considered inside IR35, this means that, for all intents and purposes, they are considered to be an employee of the end hirer.

Who decides if a contract is inside IR35?

Since the public sector reform in 2017, and the private sector reform in April 2021, the responsibility for assessing the IR35 status of an assignment now falls with the end hirer and not the contractor, provided the end hirer is not a small company.

Working with an IR35 specialist will allow you to determine this in a quick, efficient and professional manner and provide you with expert advice.

The implications of being inside IR35

The implication of a contractor’s assignment being inside IR35 is that they should be taxed at a similar rate to a regular PAYE employee. They are not able to receive the tax benefit of working through a limited company.

If the contract review and the end hirer indicate that the assignment is inside IR35, the fee payer – the organisation that pays the personal service company (PSC) - will be responsible for the following:

  • Making PAYE RTI submissions to HMRC
  • Deducting PAYE tax
  • Deducting National Insurance
  • Paying employers' National Insurance contributions

If you ignore the IR35 legislation

If the end hirer ignores the rules and fails to determine IR35 status using reasonable care, they retain responsibility for the tax liability and a potentially hefty fine. However, HMRC have said they will not apply penalties for the first 12 months except in cases of deliberate non-compliance.

How to challenge an inside IR35 determination

Speak to the end hirer

Reaching out to those who deemed the contract inside IR35 will allow you further insight into what led them to their decision; was it one small clause that you could ask them to re-word, or is it a factor that you (as well as the contractor) may have overlooked?

It could even have been an order from higher management that has been followed through without further consultation.

Speaking to the end hirer can help clear the air, build your relationship further, rectify an incorrect IR35 determination, or allow you to provide a clear answer to the contractor as to why they have been deemed inside IR35.

If the contract remains inside IR35 after reviews suggest otherwise, it’s important to remember that the determination is still the responsibility of the end hirer.

The April 2021 reforms have seen the introduction of the client led disagreement process, SDS (Status Determination Statement) and debt transfer provisions which will apply equally to public sector and private sector organisations.

Both the fee payer and the contractor are able to make written representations to the end hirer challenging the SDS, if you do this the end hirer must respond within 45 days with a new SDS or state the reasons why the original SDS stands.

Get in touch with an IR35 specialist

In addition to our significant in-house expertise, we have partnered with QDOS to provide an extensive and reliable IR35 review. Together we have vast experience, industry knowledge and can be relied upon for trusted advice, so we can offer you a complete end-to-end solution.

If you’ve had the contract reviewed, contacted the end hirer, and the assignment is inside IR35 – you can advise the contractor that opting to work under a compliant umbrella company, such as Parasol, will mean that rather than becoming an employee for tax purposes only they will become our employee with full employment rights and protections.

Becoming our employee means they will no longer have the administration associated with running their own business, we’ll handle the administration, and make the PAYE deductions for tax and NI contributions as their employer. At the same time, they can expect to be paid swiftly and accurately, and there will always be someone available to talk to if there are any queries or concerns.

Wanting the best of both worlds?

With Parasol, we really are with you all the way. Together with our sister company ClearSky Contractor Accounting, we can offer a dual solution so your contractors can adapt and seamlessly switch between umbrella and limited company working styles, depending on their assignment.

If you would like to find out more, please request a callback and a member of our team will be in touch.