An employment perspective Clive Dobbin (Partner) Sarah Hayes - - PowerPoint PPT Presentation

IR35 An employment perspective

Clive Dobbin (Partner) Sarah Hayes (Solicitor)

What is IR35 and what is the background?

• Tax anti-avoidance rule to address “disguised

employment”

• Historically employees would set up a Personal

Service Company (“PSC”) to provide their

• services. Pay less tax and avoid National

Insurance (NI).

When does IR35 apply?

Is there a hypothetical contract?

• A is a person
• B is usually his/her personal service company

(PSC)

• C is a company to whom A provides personal

services through his/her personal service company (PSC)

Off Payroll Working- What is it?

Individual Worker/ Contractor

Personal Services Company Client

Written contract

A B C

What are the current rules?

What the current rules?

• Currently (i.e. pre-April 2021), the contractor (A) is responsible for

assessing whether IR35 applies.

• Personal Services Company (B) ignores its company as the

intermediary.

• Considers whether the worker (A) would be an employee if they were

providing services directly to the client (C).

• If so, the Personal Services Company (B) is responsible to make

appropriate PAYE and NI deductions on the fees that the Personal Services Company receives.

Off Payroll Working- What is it?

Worker

PSC Client

Written contract Hypothetical contract

Individual Worker/ Contractor

B C A

PSC

Client

Lower level contract Upper level contract

Agency

Hypothetical contract

Why is this changing in April 2021?

• Already applies in public sector
• In 2018, Chancellor announced an extension to the

scope of the rules to also apply to medium and large

• rganisations in the private sector.
• Postponed and due to come into force April 2021.

What are the changes?

• From April 2021, responsibility for assessing whether

IR35 applies will shift, from the contractor/PSC to the end user/client.

• If the end-user/client determines that IR35 applies, the

responsibility for operating PAYE and NI moves from the PSC to the “fee payer” (i.e. the entity which has contracted directly with the PSC).

How is it changing?

• Client = Highest person in the contractual chain

▪ Required to make a determination of whether IR35 applies

• Fee-payer = person immediately above the intermediary in the

contractual chain ▪ Treated as making to the worker, and the worker is treated as receiving, a payment which is to be treated as earnings from an employment (“deemed direct payment”) ▪ Therefore required to operate PAYE ▪ Fee earner is the entity that is contracting directly with the PSC.

How is it changing?

PSC

Client

“Client and “Fee-payer” PSC

Client

Agency

Individual Worker/ Contractor Individual Worker/ Contractor

“Fee-payer”

Employment status

Very topical area of employment law Categories

• Employee
• Worker (not a tax status)
• Self employed
• Under limited company/personal service company
• Sole trader

Employment status – why does it matter?

Employee Worker

Unfair Dismissal

Yes No

Minimum notice

Yes No

Redundancy

Yes No

Maternity leave & pay

Yes No

Statutory sick pay

Yes No

Employment status – why does it matter?

Employee Worker National minimum wage Yes Yes Working Time Reg (holiday) Yes Yes Discrimination Yes Yes Auto-enrolment Yes Yes

Employment status

Employee ‘an individual who has entered into or works under a contract of employment’

Section 230(1), Employment Rights Act 1996

Employment status - factors

• Personal Service
• Pay
• Mutuality of obligation
• Control
• Equipment
• Risk
• Integration
• Sickness/holiday

Worker – definition

Any other contract….whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not…that of a client

• r customer of any profession or business

undertaking carried on by the individual

Worker – factors

• Personal service
• Business undertakings
• Mutuality of obligation

Worker – Business undertaking

Similar factors to employment test, but ‘bar set lower’

• Control
• Exclusivity of arrangement
• Duration
• Method of payment
• Supply of equipment
• Level of risk

Limited company contractors

• Individual supplied to client through limited

company

• No direct contact between individual and client
• Courts can look behind limited company to

reality of situation

Pimlico Plumbers

Pimlico

• Treated as self employed
• Had been engaged for 5 ½ years
• Worked full time (although contract said not
• bliged to accept work)
• Required to wear uniform
• Drove van with Pimlico logo on side

Pimlico

• Provided own tools
• Accepted risk – insurance & if client didn’t pay
• Right of substitution
• Restrictive covenants

Pimlico

Held

• Not an employee
• But was a worker

Uber

Uber

• Uber argued that simply a technology platform

for taxi drivers

• No commitment to offer any work
• Driver supplied vehicle, responsible for all costs
• But when signed onto app, was available for

booking

Uber

• Driver offered work, 10 seconds to accept, if not

allocated to someone else

• If didn’t accept work, could be suspended from

app

• Uber set price for journey
• Passenger pays Uber, who pay driver less

service charge

• No uniform

Uber

Drivers were workers when:

• In territory in which authorised to drive
• Turned on app
• Ready and willing to accept fares

What steps can be taken to prepare?

• Consider atypical workers
• Consultants
• Off payroll working
• Casuals
• Consider if:
• Actually employees; or
• Workers

What steps can be taken to prepare?

• HMRC’s Check Employment Status for Tax (CEST) tool
• End user clients required to provide a status determination

statement (“SDS”) to both the worker and any third party contracted with.

• Ensure processes in place to pass the SDS to the worker and

any relevant third party.

• What if determination is challenged?
• Do you have template documentation ready?

What does this mean?

• Engagers may consider bringing workers onto

their payroll as employees.

• Engage individual directly as a self-employed

contractor?

• What other issues are you experiencing?

Any questions?