IR35 is also known as ‘intermediaries legislation’. It’s a set of rules that affect tax and National Insurance contributions if an individual is contracted to work for a client through an intermediary.
If a worker is deemed as ‘employed’ then the end client receiving the service is liable to pay the workers TAX and NI. If a client decides IR35 does apply, the contractor business will be taxed at source, through the Real Time Information (RTI) system, exactly as if it were an employee.
Although contractors impacted by this measure may have to pay tax like an employee, their employment status will not change, so they will not receive the rights and benefits that go with employment such as pension contributions, holiday pay and unfair dismissal rights.
When will these changes take place?
The changes will take effect from 6th April 2017.
Who is an employment intermediary
An employment intermediary is a person or business who makes arrangements for someone to work for a third person. They are also often known as an ‘agency’ or ‘employment business’. Employment intermediaries are responsible for making sure that tax and National Insurance are paid correctly for workers.
An intermediary supplies workers to work for an end client or another employment intermediary, and the client then pays the intermediary for the worker’s services. The end client is who the worker does the work for (ie the school receiving the service provided by the worker).
The intermediary can be:
- a limited company
- a service or personal service company
- a partnership
Working out the worker and client relationship
When you’re deciding if IR35 applies to a contract it’s important to establish what the underlying relationship (your employment status) is between you the client and the worker for each contract or engagement.
There’s usually a contract between you and the intermediary, either directly with the individual or through another party such as:
- a staffing agency
- a recruitment agency
- an employment business.
What you need to do next
You have to use the facts of each contract or engagement to decide if IR35 applies. You should not just use any label, description, or job title. Work out an individuals’ employment status for each contract by considering what that relationship would be if there wasn’t an intermediary involved. We strongly advise you do this for each individual contract, and make sure you consider them again if the arrangements change.
Remember that there can be more than one agency in the chain to supply an individual to you as the client receiving services!
If you’re unsure about the implications for anyone who works for you then use the online employment status check to find out if a worker on a specific engagement, should be classed as employed or self-employed for tax purposes. The implications for IR35 can then be determined accordingly