Last month we hosted a webinar with Sean Mackenzie, Senior Business Development Manager for Parasol Group to tackle the new IR35 Reforms. You can watch the webinar back here.

With the changes coming into play today (April 6^th 2021) Sean has answered some of our community’s questions…

1. What is meant by “falling inside/outside of IR35”?

Inside IR35 means the assignment/role is deemed as employed so for tax purposes all National insurances and income tax needs to be paid including employers NI.

Outside IR35 means the role is deemed as a true business to business relationship so you can work through your limited company.

2. Does this legislation apply to sole traders as well as limited companies?

The off-payroll reforms are set up for limited company contractors, however, to be self-employed you need to demonstrate the same set of criteria so in some ways it does. If an end client is saying you are inside IR35 they are saying for tax purposes, you are deemed as an employee so need to pay the right level of tax.

3. If you don’t have a contract - can you include ‘terms and conditions’ that reflect IR35 rules as part of a quote.

The issue here is that the end client will be the ones making the determination and you should be issued with a status determination statement before you start the role. This will tell you which way you have been assessed, if they agree to a change in working practices so you are working outside that’s great, but they may not agree to this. However, the more that you can do to show that you are outside IR35 the better.

4. Should I opt in or out of the Conduct of Employment Businesses Regulations 2003 for my outside IR35 role?

This is up to you, which way to go... Most agencies will have you down to automatically opt out unless you are deemed as a vulnerable person or working with vulnerable people.

5. How far back can HMRC go retrospectively to query whether you were legitimately working outside IR35?

HMRC could go back 7 years, they have said they are not looking to retrospectively go back after contractors as they just want more compliance within the rules however, they cannot rule out going back if they feel there was tax evasion.

6. Am I right in thinking that if I work for a small company, that are part of the exemption, they will not provide me with a Status Determination Statement?

This is correct, small companies are exempt so will not be making the determinations, but it is important to remember that IR35 will still apply it is just down to you as a contractor to determine your status and you also take the on the liability if incorrect.

7. With substitution, if it is added it in your contract, (but do not implement it), is that enough?

Yes, that would be enough, if used even better but its very rare that we see substitution clauses exercised. Remember you would have to find the substitute and pay them. It also needs to be genuine so if you did put in a substitute it would be accepted and its not just in the contact to get around IR35.

8. Does substitutes need to be offered even if you are self-employed, not LTD company? How can I as a freelancer offer a substitute?

No Substitution would just be for limited companies.

9. Are large charities exempt?

It’s a mix dependent upon how they are registered but most are exempt, or they have already been through the reforms when it came into the public sector.

10. Who covers employers NIC?

The employers NIC should always be covered by the employer and not the employee. However, you may see that your rate is changed to reflect this so a £500 day rate would become a £420 day rate and then uplifted to £500 to cover employers NIC. However, some companies are uplifting original rates by 13.8% to cover employers NI, it is a mixed bag across all sectors.

11. Who covers sick pay?

If you are deemed inside IR35 and work through an umbrella, the umbrella covers the Statutory sick pay and claims this back through the government.

12. I have been working for a small company for the last year however they have treated me as an employee in some respects. I am no longer working with them, but could I be liable for this if I were investigated? Or is it the client?

Up until 6th April 2021 you as a contractor would be liable to unpaid tax and NICs if HMRC deemed the role inside IR35. After April it will be the fee payer (agency/end client) who will be liable for any work carried out after the 6th April 2021.

13. If you have multiple clients and one is an agency that you do 40% of your limited company’s work for? Do you go IR35 for the 40% one?
    

Yes, if you work multiple assignments, they will all be assessed individually, any that are deemed outside of IR35 you can use your limited company but if any are inside of IR35 you will need to use an umbrella or agency PAYE. So, you could be using both options at the same time.