What's happening with IR35 in 2022?
To repeal or not repeal? That is the question….
After 45 days in office, Liz Truss’ reign as UK Prime Minister saw a plummet in outside investment into the UK, a blow to the conservative party’s reputation and the 2021 changes to the IR35 off payroll rules thrown into question. Kwasi Kwarteng’s economic proposal that promised large tax cuts for the wealthy and a U-turn on these IR35 changes triggered major backlash from the public and the market, being later fired by Truss. A swift change of leadership was made, and the recently appointed Chancellor of the Exchequer Jeremy Hunt has since confirmed: IR35 will not be repealed.
However, with all its recent attention, we thought now would be a timely reminder of what IR35 in 2022 is, who it affects and some rules of practice to follow for contractors, clients and recruitment companies.
So, let’s remind ourselves: what are the IR35 off payroll working rules?
IR35 is simply designed to differentiate a true independent contractor from those candidates who could be classed as ‘deemed employees’ of the client. These rules apply if you are a Personal Service Contractor (PSC) delivering services from the UK.
On April 6th, 2017, responsibility of determining status shifted in the public sector, and the status determination moved from the PSC to the end client. This also means the fee payer (entity which pays the PSC) will hold liability where the end client uses reasonable care.
Should contractors or sales consultants in recruitment companies be concerned about IR35?
Not really – if managed correctly by an organisation (whether this is the client or the fee payer) IR35 just another process that needs to be followed in order to trade compliantly in the UK.
What can recruitment companies do to ensure that we capture this at early stages?
Ascertaining a status determination within the early stages is key. At Quanta, we always advise to do this at role stage. This allows us to correctly advertise the roles and attract the right pool of candidates.
How does IR35 affect remote workers, and is it applicable to them?
IR35 is triggered by tax residency – it is all to do with the country you reside in. If you are a resident in the UK and are contracting via a limited company that is based in the UK, then IR35 rules will apply. So, even remote contractors in the UK working for clients abroad will still need to work compliantly with the IR35 legislation.
How do rewards and incentives offered by clients have an impact on IR35?
The point of IR35 is to make an accurate distinction between direct company employees and outside contractors. Incentives like these are usually given to true employees of a business, so you will need to tread carefully when offering or accepting rewards. In the event that the client wishes to give gifts across the board to all of their consultants, say closer to Christmas, then this could be acceptable. But offering an incentive to perform or as a reward for hard work could mean the contractor is misconstrued an employee.
Whose responsibility does IR35 come under?
The legislation states that it is the client’s responsibility to conduct a status determination. However, depending on the size of the client’s legal and compliance teams, some organisations are more equipped to deal with IR35 than others. If the client needs coaching and guidance, our compliance team at Quanta are happy to help. Although recruitment companies can be involved and help make the determination together, it is the client’s final signature on the status determination that counts.
What is the deal with insurance and IR35?
As a contractor going through a limited company set up, you should have employer’s liability, professional indemnity and public liability insurance. Some contractors question why this is needed, but we always give the same answer: because we need to protect YOU. As a limited company worker, you are not an employee, so you need to protect your work and ensure there are no claims. A great product on the market that we highly recommend is IR35 Protect because it indemnifies the contractor, the feepayer (or recruitment agency) and client for any default payments to the HMRC.
What are the key components that determine whether an assignment is inside or outside IR35?
It is a marriage of all work practices that help determine an inside or outside assignment, not just one component. For example, mutuality of obligations, right of control, substitution, financial risk – all of this has a part to play in determining role status.
If a contractor doesn’t agree with the determination given, what happens?
A contractor can challenge a status determination within 45 days of receiving it. Once a challenge is triggered, it is the responsibility of the client to ensure that there is a consultation, and the assignment is reassessed to subsequently provide a final result.
If an assignment is deemed to be inside IR35 even after an appeal, what does this mean for the contractor?
This means that the contractor can’t use their limited company, but they can still take on the job. The use of umbrella companies are a common way of working in the recruitment sector where they will employ the candidate directly. Unfortunately, this will mean that the contractor’s income will be subjected to a higher tax band as well as their national insurance and income tax. This is why making a status determination early on is really important, because the details can be straightened upfront and costs like this built in.
Get in touch with Quanta
If you have a question about IR35 and contracting across the world, Quanta can help. We offer guidance packs and one to one support to all of our clients, contractors and candidates struggling with IR35. We continue to keep abreast of developments, and with a (hopefully) more settled political climate ahead, can continue to operate with the 2021 off payroll rules.