What is IR35
The term IR35 has cropped up in accountancy news over the last few years as changes to the rules have been made by HMRC but the term is not self-explanatory at first glance. The â€˜IRâ€™ stands for intermediaries legislation, a set of rules that apply to an engagement between an individual and a business to ensure that the correct taxes are paid for the workers.
If a business employs a worker then they are responsible for carrying out PAYE for that individual. If an agency supplies the workers for an end client (a third party) they are an employment intermediary and there are special agency rules. Agency rules state that the agency must run payroll for its workers that it supplies to end clients if the following apply:
â€¢ The workers carries out tasks for the end client â€“ the business you supply the worker to.
â€¢ The agency and the end client have a contract between them
â€¢ The payments received from the end client are for the workerâ€™s services
There are exceptions to the above, and agency rules do not apply if any of the following are met:
â€¢ The workerâ€™s services are not supervised or controlled by the agency
â€¢ The work is carried out at the workerâ€™s home or on premises not owned by the end client
â€¢ The workerâ€™s services carried out is of the following nature(s): actor/actress, singer or musician, fashion, photographic or artistâ€™s model or another sort of entertainer.
An off-payroll consideration for an intermediary can occur if the worker runs their intermediary as a director. The off-payroll rules continues to ensure that correct taxes and national insurance is paid as if the worker was a direct employee of the end client. The intermediary can be the workerâ€™s own limited company, a partnership or another individual.
If working in the private sector the person providing the services through the intermediary is responsible for considering if the off-payroll rules apply to the worker. The engagement needs to be reviewed in terms of the relationship between the worker and the end client if no intermediary were involved; if the worker would be employed would be employed if there was no intermediary then the off-payroll rules apply. The rules will also apply if the worker is an office holder of the client, if the worker is working alongside a spouse or partner, working in the construction industry or working for a charity.
If the services are to be supplied to the public sector, it is the public authorityâ€™s responsibility to consider the off-payroll rules. The public authority would be anyone working for government offices, the NHS, schools and universities, and any other authority within this scope. If the off-payroll rules are not applied, or even ignored, fines and penalties will be incurred. HMRC has an employment status tool on their website which can be used to find out if the off-payroll working rules apply. Tags:
IR35, intermediary company, agency company, PAYE