From 6 April 2021 large employers will be liable for unpaid tax in respect of ‘employed’ contractors hired via a personal service company.
If HMRC determine a self-employed contractor is employed by you, then you will be liable for unpaid tax and national insurance contributions in respect of payments made to that contractor, along with potential fines (determined as a percentage of the tax and NICs which should have been paid).
You’ll be caught by the new IR35 regime if you employ more than 50 employees, have an annual turnover of at least £10.2 million, or a balance sheet total of more than £5.1 million. If that’s the case here’s what you need to consider in respect of the IR35 changes:
- If the reality is that you employ contractors via a personal service company (even though your agreement with them is on a self-employed basis) you’ll be responsible for deducting tax and NICs in respect of the payments you make to them (even if they’re holding themselves out as self-employed).
- Check you have terms of business in place for every contractor you work with and that they reflect the reality of the arrangement and why (assuming that’s the case) you consider that the contractor is self-employed.
- Using the HMRC tool begin auditing whoever you engage as a contractor, the terms in place with them and whether they may be deemed to be employed by you. If you determine through the HMRC tool that you may be employing contractors, further advice should be taken.
- In respect of each contractor you’ll need to issue them with a ‘Status Determination Statement’ which will confirm why it is you consider that they are not employed (assuming that is the case).
- Carry out an annual review in respect of your contractors and ensure that you issue any new contractor appropriate terms and the Status Determination Statement.
- Ensure that the engagement of any new contractor is authorised at a senior level and noted on a register of contractors.
- Ensure that at the end of any relationship with a contractor the termination of the agreement is captured in writing and noted on your contractor register.
We can support you in ensuring your contractual documents are up to date and in carrying out an employment status audit in readiness for the IR35 rules (which should be carried out annually as a minimum). Get in touch to discuss further.