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The impact of IR35 on the private hire sector
T’S A SUBJECT WHICH MAY SEEM RELEVANT A medium or large business, as per the definition only to larger operators. But IR35 but will within the Companies Act 2006, falls within the have an impact in many ways on those who definition, therefore a business turning over more than are also sub-contractors or micro limited £10.2m, with a balance sheet of more than £5.1m and more than 50 staff would be within the scope of IR35. companies, and that carry out work for big operators. However, please remember that for all And eventually, all this legislation will trickle down subcontractors, any limited company contractor to affect all self-employed contractors and their engaged will need to make their own decision as to engagers in this industry. whether their engagement is caught by IR35 under the I genuinely believed that, among all the chaos of Gary Jacobs existing rules. Covid-19 and Brexit, the government would be unlikely If you are a medium or large business, you will have to go through with this legislation. But no. IR35 is Gary Jacobs a legal obligation to decide whether each contractor’s still happening, and will be here in April 2021, so big runs Eaziserv, an engagement falls within IR35 using the traditional tests companies need to prepare for it now. accountancy firm of employment status. This is the case for each and The IR35 legislation was brought in as anti-tax specialising in every contractor – no blanket decisions. avoidance legislation, to reap back tax through the taxi and private You have an obligation to use “reasonable care” national insurance. It is aimed at the situation when making the decision, and to issue a Status hire business where a worker is believed to be more like an employee, Determination Statement (SDS) confirming your but they provide their services through a limited eaziserv.co.uk decision. If you engage contractors – drivers – directly, company, thus avoiding the tax and NIC consequences this SDS must be issued to the driver. For those that of being employed. engage contractors via an agency, the SDS must Since its introduction in 2000, the onus was on the be issued to both the worker, and the party in the limited company contractor to look at their engagement contractual chain directly below the client. to decide whether it would reflect employment were it So, who is liable for the tax and NIC? This is a little tricky, as there not for the limited company. IR35 is essentially a question are provisions for the liability to move up and down the contractual of employment status: if IR35 applies, the limited company chain depending on the parties involved and their behaviour. must pay the tax and NIC that would have been due if the Simplest of all is where the operator engages the contractor contractor’s engagement were reclassified as employment by HMRC. (driver) directly, where the driver is responsible for the tax and NIC. This has already been rolled out into the public sector, where Where there are other parties in the chain between the client and it is the public sector body’s responsibility for deciding as to worker’s company, the ‘fee-payer’ – that is the party making the each contractor’s engagement, and then the limited company payment to the contractor – is treated as making the deemed direct must be paid net of tax and NIC when an engagement is deemed payment, and therefore responsible for the tax and NIC. caught by IR35. However, even where there is a fee-payer involved, there are It is no secret that change to the legislation in the public circumstances in which the operator will be liable which you should sector created chaos. This resulted in many departments issuing be aware of. The operator could be liable for the tax and NIC until blanket ‘caught’ decisions across their workforce, with swathes of and unless it issues the SDS to the worker and, if applicable, the contractors terminating their engagements and seeking work in party below it in the contractual chain. the private sector. It also fed into the hands of the many umbrella So, if you are an operator or an engager of sub-contractors, you companies, who offer a legitimate half-way house: compliant and yet need to confirm whether the legislation applies to your operation within the spirit of the legislation. and identify where workers’ services are provided via intermediaries. Because of this absolute chaos, the Government decided that this You need to put procedures in place for reviewing engagements change to the legislation was a success, and it decided to roll it out and issuing SDSs, as well as investing time in ensuring they have to the private sector as the IR35 legislation. So, who in this trade will an adequate appeals procedure in place – either internally, or via a be affected by the changes? suitable external advisor. ‘SMALL BUSINESSES’ ARE EXEMPT A warning: During the consultation process, HMRC has made it The new legislation will only apply to medium or large businesses, clear that it is aware of avoidance strategies and will not be fooled and public sector organisations, that engage limited company by contrived arrangements intended to circumvent the new rules. contractors either directly or via an agency. Note that the legislation Such arrangements should not be entered into in haste, and without replaces that which currently covers public sector engagements. review by a suitably expert third party. Just to be clear, a small business has turnover of less £10.2 Thanks to Rebecca Walker of HQ35 for her substantial input in million, a balance sheet under £5.1m and fewer than 50 employees. this article.
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