Calling all private sector end-hirers!

February 21, 2020

 

Ahead of 6 April 2020, you must decide how your contractors are paid and whether they sit inside or outside IR35. It’s important you get a head start, as those found to be non-compliant may risk huge financial consequences. 

This blog provides step-by-step instructions in simple terms to help you identify your contractor’s status. 

Is my contractor inside or outside IR35?

There are five key factors that determine whether your contractor(s) are placed inside or outside IR35. Consider the following:

  1. Supervision, direction and control – what degree of supervision, direction and control do you (the employer) have over how your contractor completes their day-to-day work? 
  2. Mutuality of obligation – Does the contractor have to carry out the work themselves, or can they send someone in their place?
  3. Money, money, money – Do you pay your contractor the same amount each month and on a rolling basis? Or do you pay them once they’ve completed their project and supplied an invoice?
  4. Substitution – are you obliged to offer your contractor work, and are they obligated to accept it?
  5. Location, location, location – does your contractor work from home using their own resources (e.g. laptop, phone, desk, office), or do they work in-house using your organisation’s assets (e.g. office space, desk, phone, laptop etc)? 

Supervision, Direction and Control: If your contractor has relatively high level of responsibility and are expected to project-manage various accounts, it’s likely they are positioned inside IR35.

Mutuality of obligation: A contractor often works from project-to-project with no obligation to carry on working for the client after the work is complete. If your contractor is expected to continue working for you after they’ve completed the task and delivered, then they should be placed inside IR35. If you’re still unsure, ask yourself this: does your contractor provide their services to other clients? If the answer is ‘no’ then inside they go! 

Money, money, money: It’s simple really. If you pay your contractor the same amount each month without raising a PO, then they’re probably inside IR35. But if they only get paid once within 30 days of delivering the work, they’re most likely outside IR35.

Substitution: If your contractor is able to provide a substitute to do the work, and they aren’t obligated to perform the work themselves, this positions them outside IR35.

Location, location, location: Perhaps the most obvious one – if your contractor mostly – or always – completes their work at your office, uses your facilities and attends regular meetings and work functions they are most probably inside IR35!

I’ve identified their status – what do I need to do now?

Congrats! The hardest part is over (sort of). You must now issue a Status Determination Statement* to your contractors, which makes their IR35 status clear and explains why you’ve positioned them inside or outside IR35. Here are a few other things you should do: 

Inside IR35 – as their employer, you’ll be responsible for deducting PAYE tax, deducting national insurance and paying NI contributions. 

Outside IR35 – If your contractor is outside IR35, create a IR35-proof contract which states that the client has no obligation to offer you more work and you have no obligation to take it. This is what is meant by ‘Mutuality of Obligation’. 

*There are a number of useful templates you can use online.

What if my contractor isn’t happy?

Contractors can no longer govern how their paid – it’s now up to you (the client) to determine their tax status. Support your decision and present the best possible case with sufficient evidence and tax documents. This will put you in the best possible position if you do encounter problems – you can simply present your findings. It will also help you to avoid any penalties.

If you’re still not sure where best to place your contractor, CEST is a useful tax tool that will help you determine employment status.

Still have burning questions? Check out our latest blog or get in touch today.

Good luck!