As a business owner, you need to be aware of IR35, especially if you engage off-payroll workers and contractors.
IR35 is a regulation established to ensure that workers make the right amount of Income Tax and National Insurance contributions (NICs).
It applies to workers providing services through an intermediary, such as a limited company. If these workers were hired directly by the client, they’d be considered employees.
Implications of IR35
If you’re an employer hiring workers through an intermediary, it’s your responsibility to decide whether the worker should be categorised as an employee for taxation purposes.
Typically, you can make this decision using the Government’s Check Employment Status for Tax (CEST) tool. While the tool isn’t perfect, it provides protection and justifies your decisions.
Should the worker be deemed an employee, it becomes your duty to deduct Income Tax and NICs from their salary and contribute to employer NICs.
Factors like the worker’s autonomy over their work, exclusivity agreements, and their integration into your business must be assessed.
Moreover, you are expected to create a Status Determination Statement (SDS) outlining the reasoning behind the worker’s tax classification.
Ensuring compliance with IR35
In order to be compliant with IR35, you must thoroughly review your agreements with workers providing services via an intermediary. Identify workers who may fall under IR35 and examine their employment status.
Consider updating contracts with workers to reflect their designated employment status. Engage in clear communication with workers about any alterations to their status and its implications on their compensation and benefits. This will help ensure a smooth transition and prevent any misunderstandings or disputes.
IR35 is a complicated tax regulation that holds significant implications for employers engaging workers through intermediaries. Compliance is essential to avoid penalties and fines, but navigating this process can be a complex task.
Contact us for advice on IR35 and other payroll-related matters.