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Extension of the IR35 Tax Regulations to the Private Sector

Employment Law & HR
BG Purple

Note: this article was first written by our colleagues at Solve HR, before Solve HR joined Law At Work in March 2020. We have imported this...

IR35 tax legislation has been in force since 1999. The primary purpose of the IR35 legislation is to identify individuals whom are working on a self-employed or contractor arrangement who are in fact classified as a '"disguised employee'" working for the fee-payer/employer. Therefore the IR35 regulations identify instances of this nature whereby there has been an avoidance of Tax and National Insurance payments by fee-payers/employers and raises the question of employee employment rights. Since 1999, within the private sector it has been the responsibility of the self-employed worker/contractor to confirm the status of their worker arrangement if challenged by HMRC, whereas, within the public sector it has been the responsibility of the '"fee-payer'". From 6th April 2020, the legislation extends the responsibility to the fee-payer not only in the public sector but also to businesses of a certain size, within the private sector. This is a substantial shift of responsibility, which is likely to lead to an increase in awareness, exposure and multiple high profile case studies. It will be the responsibility of the fee-payer to determine the status of the worker/contractor and to confirm this status in writing between both parties. HMRC can instigate investigations into both fee-payers and self-employed/contractors at any time. In addition, a claim could be raised in an employment tribunal for breach to statutory rights if a claimant was to infer they should be considered as a worker or employee. If a claimant was successful in being ruled to be an employee they could in turn raise claims in an Employment Tribunal for; unfair dismissal or breach of statutory rights including the right to the minimum wage, holiday, sickness and family leave and pay and discrimination. There may be a fear from the fee-payer to suggest that employing all workers/contractors as employees may reduce the risk of failing IR35 Compliance. This is not the intention of the regulations. Employing an employee comes with Employer Tax and National Insurance payment responsibilities along with Employee Rights to all other Statutory and Company benefits provisions along with the accrual of Employment Rights; therefore the genuine contractor working arrangement could continue to be better suited for the fee-payer. There are key indicators to assist with determining if the fee-payer and worker are likely to be operating within or outside of the IR35 regulations. Solve. can support you with determining these differences and can advise you on the requirements of the '"fee-payer'" in order to support with status determination. If you operate with service agreements for services provided, such as consultants, please do get in touch. To find out more about IR35 Tax Regulations please speak to a member of the Solve. Team.

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