Terms of engagement and end client issues: Ask Andy Answers
As contractors get to grips with the IR35 reforms, they continue to be a source of confusion for many. Kingsbridge’s Head of Tax, Andy Vessey, has been answering your questions on all things IR35 for the last few months and, this week, we have a bumper crop, so if you have a burning question on off-payroll working, you may way find the answer here.
Do you think there will be a probe/investigation into large companies where they have taken a blanket PAYE policy approach since this goes against the HMRC guidance?
End clients who simply do not wish to engage with the off-payroll rules and refuse to hire PSCs in favour of umbrella workers or agency PAYE are quite entitled to do so as it is a business decision that HMRC cannot interfere with. However, those end clients that do use PSCs but determine the workers are all ‘inside’ IR35 without proper consideration of the contractual and working arrangements would be failing to take reasonable care. As such, the responsibility for the deduction of tax and payment of apprenticeship levy and paying these to HMRC will be with the end client. This will be the case even if another party has already made the deductions in line with the original determination as corrections for that other party can be made.
If a client decides your status to be outside IR35 when it is actually not, then who will have to pay the extra tax and penalty charges?
If the end client has not taken reasonable care in reaching the status determination they will be liable for any PAYE tax and NIC. If they have taken reasonable care then the fee-payer will be liable, typically an agency. However, if the end client engages the contractor directly, then they will be the fee-payer.
I have a one-man-band limited company and was forced to take a Bounce Back Loan in the first lockdown. My professional contacts are telling me that companies want no involvement in IR35 and will not hire me through my limited company, they will only employ me PAYE, making it pointless to keep my limited company. As I would have to keep paying insurance as well as accountancy fees, do you think that introducing IR35 at this particular time will result in limited companies going bust and with it the chance of Bounce Back Loans being paid back?
I have a huge amount of sympathy for contractors during these COVID times. As if the economic fallout wasn’t enough to contend with, they have to negotiate the challenges that the IR35 reforms bring too. There will be a good number of PSCs that have and will, no doubt, have to be wound up for economic reasons but, as well, contractors being forced down the PAYE route for one reason or another will find that their companies are redundant and therefore have no further use for them. The recent HMRC research document, ‘Effects of the off-payroll working reforms on the agencies’ also confirmed this concerning trend of some agencies and end clients blanket banning the use of PSCs in favour of either umbrella companies or agency PAYE, so that they do not have to engage with the off-payroll rules. Personally, I think it is short-sighted and a decision that they might have to re-visit should they find themselves facing a skills shortage.
I have received a determination from one of my clients (using CEST) which finds my contract is outside IR35. However, some of their answers don't seem to reflect my actual working arrangements very well. I know they are responsible for this decision as they are in the public sector, but what is my responsibility for ensuring their determination is accurate and what could my liability be if HMRC disputed it?
You do have a right of appeal which you could use to bring these matters to the attention of your end client. The PAYE and NIC risk lie with the fee-payer so it is in their interest to listen to your concerns should they have made an error in their determination.
I have been given a 'terms of engagement for a consultant' by a company that I have been working with prior to 6th April. Can this contract be reviewed as to whether it complies with being outside IR35? My intention would be to work at home with remote access to the on-site CAD system.
IR35 requires a review of both the contractual and working arrangements, with the latter generally taking precedence over the former. If your contract is an exact mirror of the way you work from day to day, then you could run this through the tool. If not and where there are contradictions or uncertainty, then you should concentrate on your working practices, where possible, to give you an accurate determination of your employment status.
I work on an ad-hoc basis for an agency and have multiple all self-employed income streams. The agency tell me my end clients need to complete an IR35 determination, but my contract is with the agency, is this right?
If you are working for a medium or large-sized business then they are, as of 6th April, responsible for determining your employment status and therefore whether or not IR35 applies to your engagement. They must then pass that determination to you and your agency, which will give the reasons supporting their conclusion. IR35 ignores the agency in the contractual chain and asks if you were to be engaged directly by the client would you be self-employed or a disguised employee? If your end client deems you to be ‘inside’ IR35 you do have a right of appeal.
How to Ask Andy…
If you think Andy can answer your IR35 question, you can put it to him here and he’ll do his best to answer right here on this blog.
If you’d like to review your IR35 status to give you confidence in your client’s determination, the Kingsbridge IR35 Status Tool is here to help. For just £50 plus VAT, this clever hybrid tool can analyse your contract and working practices to give you an instant inside or outside IR35 determination. And if your status is borderline, one of our (human) IR35 experts will manually review it to give you a definite answer.