What is IR35 and off payroll working?
Off-payroll working rules apply if a worker provides their services directly through their own limited company or another type of intermediary such as an umbrella company, personal service company (limited companies with a sole or majority director/shareholder who provides the services of the company), partnership or agency etc. Off payroll working applies to anyone who is not directly employed by your organisation and is not on your payroll.
The tax status of the contract for all off payroll workers must be determined for HMRC. IR35 refers to this legislation which is designed to combat tax avoidance by off payroll workers supplying services via an intermediary but who would be an employee if the intermediary was not used.
Who’s responsibility is it to determine the tax status of the contract?
The responsibility for determining the status of the contract lies with contract issuer/client. Assessments should be done using the governments online Check Employment Status for Tax (CEST) tool which determines the status:
An assessment must be carried out to determine and confirm the status of each off payroll contract prior to the contract commencing.
How to determine the IR35 status
Schools can easily determine the IR35 status of a contract by:
- completing the BC Programme of Works form
- completing HMRC’s Check Employment Status for Tax (CEST) online questionnaire
The CEST questionnaire will advise the school of the tax/IR35 status. HMRC will stand by the result given by the online questionnaire unless they find that the information provided was not accurate. The CEST questionnaire must be completed by the designated person with the schools as the end client. It is not permitted for the worker to complete the questionnaire on the schools behalf.
Guidance for using the CEST tool can be found here: ESM11000 - Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk)
As of 6th April 2021 HMRC are making some changes to the tax rules for ‘off payroll working’. The main legislative changes are:
- A Status Determination Statement (SDS) must be obtained for each contract confirming the status and issued directly to the worker or agency (if appropriate)
- A copy of the appeals process must be issued to all ‘off payroll’ workers and the agency (if appropriate) with each SDS statement
- A copy of each SDS must be retained for records along with any evidence relating to the determination status and kept for the duration of the contract.
- For all new off payroll roles/contracts an assessment must be completed and an SDS obtained PRIOR to engaging a worker.
Status Determination Statements (SDS) can be obtained at the end of the CEST assessment, this statement confirms the status and tax liabilities for the role/contract.
For an SDS to be valid, reasonable care should be taken when making assessments and if required, you should be able to evidence the decisions made. For all assessments a copy of the SDS and the appeals process must be issued directly to the worker (or the agency if appropriate). Once the SDS has been issued to both the worker and the person they contract with (if there is a third party) and reasonable care has been taken when coming to its conclusion then duties have been satisfied under the rules.
Records need to be kept of the assessment process including a copy of the SDS and evidence of any appropriate records of the decision making. Please note that HMRC consider a blanket approach no longer acceptable. Records should be maintained for the period the worker continues to provide services
Responsibility for tax and NICs will stay with your organisation until you pass on the SDS to the next qualifying person in the chain. In certain situations, if the assessment is deemed to be incorrect, HMRC can recover debt from our organisation.
It is advisable to consider reassessing all current off payroll contracts and issuing a new SDS along with a copy of the appeals process prior to 6th April.
Further information, disputes and support
Buckinghamshire Council cannot provide technical tax advice.
The HMRC website provides further information about IR35.