IR35 REFORMS IN RENEWABLE ENERGYIndustry Insights
It is without doubt that the upcoming IR35 reforms will have an affect on many contractors working within the renewable industry across the UK and many companies, individuals and agencies will be busy preparing for 6th April but what does it actually mean?
What are the IR35 reforms?
Due to wide non-compliance with the IR35 rules, the government introduced reforms in the public sector in April 2017 – these are known as the “off-payroll rules”. The Chancellor announced in the Budget on the 29th October 2018 that the government will also reform the off-payroll working rules in the private sector in 2020.
On 17th March 2020 the UK Government announced a 1-year delay to new IR35 Off-Payroll Working rules, in light of ongoing COVID-19 challenges and effects, the new implementation will take place from 6th April 2021 from this date, the liability for assessing IR35 status is no longer on the contractor’s intermediary but on the client.
What is IR35?
IR35 is the name given to tax legislation in the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), it applies to individuals supplying their services through an intermediary, usually a personal service company (PSC).
The IR35 legislation seeks to ensure that contractors working through their own PSCs pay employment taxes and NICs where, were it not for the PSC they work through, they would be employed by the client, commonly known as “inside IR35”.
When does IR35 apply?
IR35 applies where the worker operates through a UK limited company. If you engage and supply contractors who work via an intermediary (typically a PSC), where taxes and NICs are not deducted at source, then you are likely to be affected by IR35.
How is the employment status of a worker assessed?
HMRC provides an employment status tool, (CEST) to find out if you, or a worker on a specific engagement, should be classed as employed or self-employed for tax purposes: Check Employment Status for Tax Tool
Can I rely on the status determination produced by CEST?
HMRC have said that if the parties use the employment status tool and input information which is accurate and honest, and the answers remain accurate during the contract, then HMRC will stand by the outcome.
IR35 assessment Criteria
Some of the factors considered when assessing employment status and whether or not an assignment would be inside or outside of IR35 are (this is not exhaustive):
• The contractor is not under supervision, direction or control of anyone in the supply chain as to the manner in which the services are provided. The contractor provides independent services, and the client does not treat them as if they are “part and parcel” of their organisation.
• The reality of the situation is that the contractor is responsible for the delivery of the services, and determines, and controls when and how they undertake the work they do for the client, as long as they meet client-specific targets or project completion dates.
• The contractor does not have to perform the work or services personally, and the client has to accept a substitute (subject to that substitute having the requisite skills and capabilities).
• The PSC maintains adequate business insurances.
• The PSC submits invoices for work completed or agrees to a self-billing arrangement.
• The PSC is responsible for paying the required taxes and statutory deductions on amounts paid in respect of the work undertaken. All amounts are treated as trading income.
• The contractor/PSC is only paid for services performed. There are no payments made for any time when the contractor is not available for work (including but not limited to holiday pay or sick pay). The client has no liability to pay for any periods during which the contractor is not providing their services.
• It is important to consider the factual reality of an assignment, not what the contract says.
The client has determined that the assignment is “inside IR35”, what are the options?
If an assignment is determined as “inside IR35”, there are various alternative engagement models to an off-payroll model:
PAYE payroll (agency workers) – Where a recruitment company contracts directly with the worker and operates tax and NICs under agency rules and provides the workers with worker rights, IR35 off-payroll rules do not apply.
Umbrella Company – Where an umbrella company employs the worker directly, the off-payroll working rules do not apply.
“Inside IR35” PSC – A contractor who is deemed “inside IR35” via their PSC, will be paid via a “deemed employment payment” using the RTI (Real Time Information) payroll system. The deemed employment pay rate is the income of the worker after deductions, including both employee and employer NICs and the Apprenticeship Levy. Neither worker rights nor stakeholder pension rights apply.
Statement of Work - A Statement of Work (SoW) is a document, typically used in project management, which defines a set of project-specific activities, deliverables and timelines for a contractor providing services to a client.
In an assignment where a contractor agrees to perform specific tasks or deliver certain outcomes for a set price and within an estimated delivery time, there is less likelihood of the client exerting control over the contractor. A SoW contract, if appropriately executed, is likely to be “outside IR35”, compared with the traditional time and materials-based contract on a set hourly or day rate.
What if the client is based outside the UK?
Where the medium and large-sized private sector client is based wholly overseas and has no UK connection, the worker’s limited company (PSC) will remain responsible for deciding the contractor’s employment status and whether IR35 applies.
Our specialist consultants are well educated on the coming reforms and are helping our clients and candidates navigate the changes, should you have other questions please don’t hesitate to contact us.