Important information for limited companies operating as Sub-contractors IR35
Changes to Sub-contractors IR35 are due to be implemented in April 2021. This is for companies operating in the private sector. They were scheduled for April 2020 but delayed a year due to Covid-19.
‘The Elephant in the room’
The main thrust is that it is now a legal requirement for the contractor/agency to check the status of the sub-contractor. If it is considered that the sub-contractor falls within the regulations, and would therefore need to pay the appropriate amounts of national insurance.
As the onus falls upon the main contractor nearly all large companies have made the decision to cease the use of sub-contractors. Permanent positions are being offered to some. However, at a much lower rate than that being received via the agency.
There are some agencies offering umbrella companies as an alternative.
The regulations stating what percentage of expenses are allowable. The amount of administration. The input required by the director. In conclusion, all of this coupled with the fees that these umbrella companies charge, nearly always end up making this option non-feasible.
Does your Company fall in to the Sub-contractors IR35 net?
To check if your company falls into the IR35 net, he government have published a question and answer check list available at www.gov.uk/guidance/check-employment-status-for-tax
There are certain sub-contractor companies that can fall outside of the regulations.
For example, if the company works for multiple clients, in control of how and when they work, and provide varying staff to undertake this work it demonstrates that it is likely that this business falls outside of IR35.
As always, it is essential to obtain professional advice from an accountant experienced in these matters. It may also be advisable to consider obtaining a contractors insurance policy, that may also assist in convincing employers that you are not subject to IR35.
Small Employer Definition
Employers designated as ‘small employers’ as defined by the Company Acts- annual turnover less than £10.2 million- balance sheet assets less than £5.1 million and less than 50 employees are exempt from the regulations.
Therefore a sub-contractor working either directly or indirectly for such an employer is also not subject to these regulations.
The indicators used by HMRC from decisions handed down from tax tribunals show there are four main factors considered to establish IR35 in or out.
- Is there more than one customer? If demonstrated that there is more than one customer, and tno regular shift patterns, it will be considered unlikely that there is no employer/employee relationship.
- If individuals working for the sub-contractor can be substituted to undertake the work, the indication would be outside the scope of the IR35 regulations.
- Set working conditions and hours. If a sub-contractor works at the contractors premises, on set hours and uses the contractors equipment, it is probable that this case would fall within the regulations
- Payments based upon a fixed price rather than an hourly/daily rate, are more likely to be acceptable. This is because financial risk is involved.
This information is intended to be a guide. As in all cases, seek professional advice before implementing any policies outlined in this update.
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