IR35: essential steps for compliance

[edit] Introduction

From April 2021, larger businesses face new duties under HMRC’s ‘off-payroll rules’ when they use individuals who work through their own limited company. In practice, this means that if you have workers in your business who are there regularly, but not on your PAYE system because they are paid via other routes, you must find out more and act accordingly.

[edit] Steps to take

The first thing to do is to establish a list of possible ‘problematic’ candidates and then find out who pays them. If they come through an agency and the agency pays a wage that runs through PAYE, the issue is solved. If they work for their own limited company and either the agency or your firm pays the limited company, you are in the firing line of the new off-payroll rules.

These rules effectively say that the firm using the worker is responsible for any unpaid PAYE, if this is not imposed and paid within the chain of intermediaries and agencies and personal service companies – regardless of the length of the chain.

The next thing to do with your list of ‘problematics’ is to check their employment status for tax (a ‘CEST test’). A CEST test can be done anonymously, but if it shows that a worker is self-employed, it can be useful to log it with that person’s name and print a copy as evidence that you did the test.

If the CEST test shows that the person is an employee, you must notify their limited company, or the agency or intermediary – and you must get their reassurance that PAYE will be applied to the payments. You need to be confident that you trust this reassurance, because your firm may well be held liable for any unpaid PAYE that HMRC may discover later.

The new off-payroll rules will apply for firms that meet at least two of the following criteria:

• An annual turnover above £10.2 million
• A balance sheet total above £5.1 million
• More than 50 employees.

This article was originally published as IR35: essential steps to help you comply on the ECA website on 1 May 2020. It was written by Andrew Eldred, ECA Director of Employment and Skills.

--ECA

[edit] Related articles on Designing Buildings Wiki

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• Status determination statement SDS.
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[edit] External references

• HMRC, Intermediaries Legislation (IR35) - Working through an intermediary, such as a Personal Service Company.