Finance, Risk & Regulatory Compliance

IR35 and making a Status Determination Statement : all you need to know.

As at the date of writing (9th March 2020) it is widely accepted that the UK government will continue to roll out the revised changes to IR35 rules across the private sector as planned on 6th April 2020.As these changes come into law, it will now become imperative for the engager (the end client) to make a Status Determination Statement (SDS)What is the SDS?Under the new IR35 rules, the engager must decide whether each of their service company suppliers (Personal Services Company or Contractor) are caught by IR35 or not. They can use HMRC’s online tool called CEST, to establish this.The engager must notify the supplier, in a status determination statement (SDS) whether they are caught by IR35. This SDS should also explain the reasons. If the engager doesn’t provide an SDS then the engager will always be liable for IR35 duties.Making a Status Determination Statement (“SDS”)The requirement to issue a SDS for each Contractor only impacts medium/large businesses, defined as generating more than £10.2M revenue per year; have more than £5.1M of assets, and/or have more than 50 employees.The new procedure will not impact employment agencies or umbrella companies where the Contractor is already subject to PAYE/NIC.Once a Client issues a reasoned SDS in writing, the liability to operate PAYE/NICs in respect of the Contractor passes to the next person in the supply chain between the Contractor and Client. The SDS must be issued by the Client both directly to the Contractor performing the services and to the person that is providing the Consultant’s services to the Client (the intermediary).When making a SDS, as a minimum it must be in writing, but many companies will be using an online tool, such as the HMRC tool CEST (check employment status for tax). We have overviewed an alternative tool with Advance (Ernst Young). A SDS can also be raised by suitably training internal resource or outsourced. HMRC will stand by their SDS, subject to the correct information being provided (as with all online tools). To determine the status of each assignment there must be a contract in place, and before using an online tool, you will need to know:- The details of the contract (including can it be extended, notice, working hours, location)- The Contractors ’s responsibilities (including if there is a right to substitution)- Who decides what work needs doing (being aware of control and direction)- Who decides when, where and how the work is done (is there mutuality of obligation)- How the Contractor will be paid (financial risk)- If the assignment includes any corporate benefits or reimbursement for expenses, provision of equipment etc.- You will need to be able to identify all the parties in the supply chain, providing names and addresses and description of role in the supply chain (i.e. Contractor’s PSC, recruitment agency).- You must use reasonable care in making the SDS.- Copies of all SDS must be kept, and the SDS repeated around 6-9 months, or at the beginning of any new contract/extension.- Right to appeal the SDS is 45 days, and should be client-led. Making an recording SDS correctly will become an important part of any compliance team’s process going forward and at Skillfinder International we are preparing for these changes early.Who do the new rules apply to?From 6th April 2020 medium and large-sized private sector clients:The rules apply to all public sector clients and private sector companies that meet 2 or more of the following conditions:· you have an annual turnover of more than £10.2 million· you have a balance sheet total of more than £5.1 million· you have more than 50 employeesBalance sheet total means the total amounts shown as assets in the company’s balance sheet before deducting any liabilities.Also, another update from HMRC’s review published on 27th February 2020: Where the client is based wholly overseas, with no subsidiary or presence in the UK, the new off-payroll working rules will not apply, and the obligation to determine tax status falls back on to the contractor’s limited company.At Skillfinder International we guide technology professionals to the right jobs, and help organisations navigate the world of technology talent. Find your next role here.Photo by Anna Shvets

How the extension of IR35 into the private sector will affect you, the IT contractor

As it stands, April 2020 will see landmark changes to IR35, as the 2017 public sector legislation is rolled out to the private sector. This has sent shock-waves across numerous industries – with some firms such as HSBC announcing that they would avoid hiring Limited Company contractors altogether. While this may be a knee-jerk reaction – the legislation will definitely alter the contracting space as we know it. So, what should IT contractors know, and how can they protect themselves? IT contractors: IR35 explainedThe Intermediaries Legislation has been around since 2000, with its aim to remove the tax advantages of providing services via a limited company by individuals who are not truly in business on their own account – or ‘disguised employees’- whose roles are more akin to traditional employees. Historically under IR35, the contractor’s limited company was responsible for determining employment status. However, due to perceived non-compliance, the Government rolled out changes to the public sector in 2017 which made the end-client responsible for determining the employment status of contractors.Under the changes, if the end-client deems a contractor to be ‘inside IR35’, the fee-payer in the contractual chain (often a recruitment agency, or client) is responsible for deducting income tax and National Insurance Contributions from the contractor.From April 2020 – this will extend to the private sector. Given the chaos that arrived after public sector changes were enforced, contractors are understandably concerned about the prospect of further reform. However, there is plenty IT contractors can do to prepare for the IR35.Speak upWhile the changes to off-payroll working may be daunting, it’s important that IT contractors engage relevant parties in the run-up to April to ensure their client and recruitment agency is taking the necessary steps to make well-informed status decisions. It’s also worth speaking with other contractors who work for the same client.Request a Confirmation of Arrangements (COA)For contractors seeking to continue an existing arrangement, a COA is a letter or document outlining that each party in the contractual chain agrees on the IR35 status of a contractor. It should outline the specific reasons that a working arrangement belongs outside IR35 – like having the right to provide a substitute, proving that Mutuality of Obligation and control don’t exist.Contract reviewShould a contractor suspect that a client will make inaccurate IR35 decisions, they should seek a second opinion. By having your contract reviewed by an independent expert, you will be in a strong position to challenge and potentially overturn a wrong assessment. Compared to CEST (HMRC’s online employment status tool), this is a more reliable way of determining status. Armed with an in-depth status review carried out by a professional with no financial gain on the outcome of the assessment, contractors will be better placed to head off any risk-averse decisions made by your client.Gather evidenceFinally, it’s important that IT contractors are clear that they have a strong case for working outside IR35. Independent workers should gather ‘evidence’ in the run-up to April which demonstrates the service they provide is genuinely self-employed.In addition to collecting information that proves they have a right to provide a substitute, do not work under the direct control of the client and are not mutuality obliged to carry out the work, it’s also worth thinking about any other ‘evidence’ that strengthens the argument. This could be:•documents showing that contractors are taking a financial risk,•evidence that contractors are not ‘part and parcel’ of the client’s company •the details of a contractors’ personal company website and stationery/equipmentDespite obvious concerns, IR35 reform is manageableWhilst IT contractors are bound to have concerns about the April 2020 changes to IR35, dealing with issues head-on is the way to go. While contractors will no longer set their own status, all is not lost. The contracting industry has survived an onslaught of legislation over the past two decades – and continues to thrive. By being proactive, and exploring the options above – IT contractors can get ahead when it comes to protecting IR35 status.At Skillfinder International we guide technology professionals to the right jobs, and help organisations navigate the world of technology talent. Find your next role here.Photo by bruce mars from Pexels