IR35
The off payroll working rules, also known as ‘IR35’ or 'intermediaries’ legislation' are a set of rules intended to prevent the avoidance or reduction of tax and National Insurance contributions through the use of an intermediary (most commonly a personal service company) between a client and an individual worker. These rules therefore affect an individual’s tax and National Insurance contributions if they're contracted to work through an intermediary.
In April 2017 the rules changed in the public sector and now require public authorities to undertake an assessment of whether the legislation applies in each case. This means that, where an individual is engaged via a relevant intermediary, Essex County Council (ECC) must determine whether the individual would have been an employee for tax purposes, but for the existence of the intermediary. HMRC can investigate these assessments, and where they are incorrect, or do not reflect the reality of the engagement, significant financial penalties could be applied against ECC. For further guidance, see understanding off-payroll working (IR35) on GOV.UK.
All roles within ECC are assumed In Scope of IR35. Therefore, the deemed employer (i.e. ECC or, where relevant, the agency which supplies the individual) will be responsible for deducting tax and National Insurance contributions at the normal rate. If the status of an individual is challenged, then the line manager will be required to carry out a status determination, using the Check Employment Status for Tax (CEST) tool on GOV.UK.
Please note that HMRC will only be bound by the CEST tool outcome if the information provided is accurate (and remains accurate) and the assessment was carried out in accordance with its guidance. If the outcome confirms the status as out of scope of IR35, then a copy of the test will need to be provided to the resourcing team who will retain and store it for audit purposes. The status must be reviewed regularly every 3-6 months or immediately if there is a fundamental change throughout their engagement to ensure full compliance with the legislation.
Should ECC determine that an arrangement is out of scope of IR35 legislation, ECC may be able to engage that individual’s personal services via a Ltd Company (or other intermediary). ECC is responsible for determining an individual’s employment status for the purpose of IR35, the individual cannot determine this, and we cannot engage an individual on this basis without prior approval of the ECC resourcing team and a completed status determination assessment (via the CEST tool).
A statement of work detailing the objectives/purpose, scope of work, requirements/actions and deliverables of a project is further required for an Out of Scope of IR35 engagement. This document is created by the line manager and individual together to agree and outline the work and further underpins the status of assignment. The resourcing team will be able to provide support and guidance and a suggested template. This is reviewed regularly to ensure deliverables and deadlines are being met in line with any agreements.
A status determination statement (SDS) is then issued by the Resourcing team with a copy retained by the individual, stating the deemed employment status of a contractor following an IR35 assessment conducted, before the first payment for any services. Individuals can appeal ECC’s decision by writing back and ECC have 45 days to respond.
It is important to remember that when an individual’s services are engaged on this basis, statutory deductions such as tax and National Insurance contributions are not made at source and any such arrangement may be subject to audit by HMRC. Should an individual be found to have been a deemed employee for tax purposes, ECC can be subject to significant penalties and as such the decision for ECC to support such an arrangement should not be taken lightly or without all checks and approvals in place.
IR35 is a complex matter which is subject to extensive legislation, please contact the Resourcing team (PDF, 125 KB) to seek full advice on the matter before agreeing to any engagements which will be undertaken on an out of scope basis.