Does IR35 make sense, if you use agency workers, read on to find out how this might affect your business
Cold Chain Federation member Backhouse Jones Solicitors help us make sense of IR35.
What is IR35?
IR35 is a piece of tax legislation that aims to combat tax avoidance that can occur when a worker supplies their services to a customer through an intermediary (often a limited company) when ordinarily they would be an employee of that customer.
When will any proposed changes come into effect?
Changes are due to take effect in relation to IR35 – Rules for off-payroll working from April 2020 to allow businesses to prepare.
How will this affect me as an operator?
There will be an impact on the HGV and PCV sectors as these industries traditionally rely on agency drivers. IR35 will change how these are treated and the obligations on operators.
Operators might think they are hiring a self-employed driver who would normally be responsible for their own income tax and national insurance contributions. However, often a slightly more complicated structure will be being used by the driver whereby they will offer their services through a Personal Service Company (PSC) and an umbrella company known as Managed Service Company (MSC). The reason they do this is because it can be more favorable to them from a tax and national insurance perspective.
Why is paying someone through a PSC or a MSC an issue?
For the HMRC, this is an issue because it means that normally less tax and national insurance is being paid by the worker. Whilst this is not illegal, the impact on businesses is acknowledged by the government to be significant. Consequently, the HMRC are keen to close this loophole. This was done in the public sector some years ago and the purpose of IR35 is to extend this to the private sector.
How will this affect me if I use drivers in this way?
It is proposed that workers through their own PSC will fall within these rules:
* the party paying the worker’s PSC (the ‘fee-payer’) is treated as an employer for the purposes of Income Tax and Class 1 National Insurance contributions;
* the amount paid to the worker’s intermediary for the worker’s services is deemed to be a payment of employment income, or of earnings for Class 1 National Insurance contributions for that worker;
* the party paying the worker’s intermediary (the ‘fee-payer’) is liable for secondary Class 1 National Insurance contributions and must deduct tax and National Insurance contributions from the payments they make to the worker’s intermediary in respect of the services of the worker;
* the person deemed to be the employer for tax purposes is obliged to remit payments to HMRC and to send HMRC information about the payments using Real Time Information (RTI).
Although this is yet to be tested in court and there may be some grey areas, the above proposals appear to broaden the definition of “employment” as it is defined in current law. The legislation will effectively curtail the present position and this type of working meaning that instead of the individual choosing their own status the onus will shift on to the hirer or engager of the service – the operator. The operator will also have more obligations and liabilities regarding income tax and national insurance contributions as detailed above. It may even be correct to say that these drivers will be treated as employees for income tax and national insurance purposes.
What can I do about it?
If you think you might be affected by IR35 and are not clear about how this may affect your business, give a member of our employment team a call on 01254 828300 for more advice.