Before April 2017, the responsibility for assessing IR35 status always fell on the contractor, which meant you made the decision about whether you were operating inside or outside IR35, and your limited company was liable for any unpaid tax if you got it wrong. This is still the case on private sector contracts.
However, the way IR35 is implemented in the public sector has now changed. The hiring business (the public sector body) is now responsible for the decision, and liable if that decision is incorrect. If your client is a public sector body – this includes the NHS and BBC – your client will need to assess your IR35 status.
For contractors found to be inside IR35, the “fee payer” ie. whoever pays your limited company, must complete a “deemed employment” calculation and deduct PAYE income tax and national insurance at source. The 5% allowance for running your company is also abolished in this instance.
The Check Employment Status for Tax Tool
HMRC has produced an online tool, intended to help public sector bodies determine the IR35 status of the contractors they hire, called the Check Employment Status for Tax, or CEST tool. It has been widely criticised, and it should be noted that contractors and clients don’t have to use it or accept the result. However, HMRC have promised to accept its results if the information entered is correct, so it can be useful. Just make sure you keep a copy of the result, and that the answers match your contract and working practices.
Blanket and Advance Decisions
The legislation calls for “reasonable care” when making IR35 decisions, and according to the guidance this means each engagement needs a separate IR35 decision. This should take into account not just the details of the contract, but each individual contractor’s working practices.
In practice this presents a number of logistical headaches, and is difficult for many hirers to accomplish. For example, IR35 status has a profound effect on the amount of money a contractor can take home, and who would accept a job without first knowing how much they’ll be paid? The need to fill roles quickly has led to many IR35 decisions being made in advance, with no reference to the contractor’s individual circumstances.
The additional workload involved in making IR35 assessments, combined with the potential consequences of an incorrect “outside” decision, have led many public sector bodies to make blanket decisions – finding that all the contractors they hire are working inside IR35. For example, NHS Improvement advised that all locum doctors and agency nursing staff should be classified as inside. They later withdrew this instruction, but there is evidence that some NHS trusts, and other risk-averse public sector bodies, are still making blanket decisions.
What this adds up to, is that contractors may find themselves being paid under the wrong IR35 status. If you believe this is the case for you, talk to your agency or client about it. The decision, and the risk, does lie with the hirer but many will be prepared to revisit their assessment in order to keep high-quality contractors.
How we can help
If you believe you may be working under the wrong IR35 status, your Integro Accountant can talk through your circumstances and advise you. Where necessary, we can perform a formal written contract review for £150 + VAT, which may be useful in challenging a blanket or advance decision.
Why Integro Accounting?
Integro Accounting is the UK’s only specialist provider of fixed fee, limited company accountancy services for contractors, consultants and freelancers that was established to an award winning standard – our Practice Manager, Maria Hickmott FCCA, won The British Accountancy Awards’ ‘Accountant of the Year’ in 2011.
We were set up with the vision of providing a service that is the ultimate for the dynamic, busy professional of today in a language you understand.
Integro Accounting have designed a bespoke service for the contractor who is always on the go; never forgetting that one size will never fit all.
The relationship you have with your accountant is the most important factor in our service which is why we will always offer unlimited contact with your own personal accountant; whether that contact is via the phone, email or face to face.
We have our 3 offices located in London, the South-West and on the Bedfordshire and Buckinghamshire border. There are also meeting locations in many of the major cities and towns across the Home counties, South-West and South Wales, all conveniently placed so that you never have to travel far to meet your accountant.
If you have any questions about contracting or would like to find out more about how Integro Accounting can help you and business please call Christian on 01525 303984, email email@example.com or request a callback.