Also referred to as ‘off-payroll working’ rules, IR35 applies if a ‘worker’, e.g. a contractor or associate, provides their services to a client through an intermediary, but would be classed as an ‘employee’ if they were contracted directly.
The use of contractors is common across all industries and in many cases, there is a genuine need for them, such as in the provision of external project managers for implementation projects.
Increasingly however, contractors are being used to fill ‘business as usual’ roles, often with a team reporting into them, with some considered an established member of the employee team (many may even be having appraisals and booking leave through an HR system!).
The example above is clearly not in the spirit of contracting and is one of the reasons why the new off-payroll working rules are coming into effect (6th April 2021). IR35 exists therefore, to ensure that contractors who work in this way pay the same amount of tax as if they were contracted directly.
Determining the employment status of a contractor
Prior to any work being carried out, it’s important that the employment status of a worker (or contractor), providing their services to a client through an intermediary, is determined.
This can be done through the preparation of a Status Determination Statement (SDS), available via the Government’s CEST online tool. This determination confirms whether or not a worker is a ‘deemed employee’ for IR35 purposes and needs to be prepared for each new engagement.
Who is responsible for determining the status of a worker/contractor?
Small private sector organisations: it’s the responsibility of the intermediary to determine the employment status of the worker (and therefore ensure that the worker pays the right amount of tax).
Mid to large private sector and public organisations: it’s the responsibility of the client to determine the employment status of the worker and, if it is determined that their status falls inside IR35, to potentially add them to the payroll.
Where does Silver Cloud’s consultancy team fit in?
As genuine, independent contractors, fulfilling a specific role and providing specialist expertise to organisations, Silver Cloud’s consultants and project managers fall outside of IR35.
All of our ‘workers’ are employees – we do not use associates – and we are therefore responsible for deducting their tax and NI contributions, not our clients.
Some key factors that result in our contractors being deemed ‘outside IR35’ include:
• We retain the right to provide a substitute for the worker/contractor and our clients cannot refuse any substitute who is suitable qualified
• Any costs incurred through the provision of a substitute are incurred by us, and not by our clients
• Our consultants are not ‘office-holders’
• Our clients do not have the right to move our consultants from the original task(s) they were contractually provided to do
• Working hours are determined by the agreed project scope and not by the client
For a breakdown of all key factors resulting in Silver Cloud’s determination outside IR35, please refer to this copy of our HMRC CEST determination.
You can use the government’s CEST tool online in order to prepare a determination statement. Further information and resources relating to IR35 can be found on the Gov.uk website.