TV presenter Adrian Chiles’ recent victory over HMRC in IR35 case has highlighted the complexity of the IR35 rules in the UK.
Since last April private and voluntary sector businesses with an annual turnover of over £10.2 million, a balance sheet worth more £5.1 million or more, and 50 or more employees, will be responsible for deciding whether IR35 applies, and for deducting tax and NICs from contractors’ fees paid through intermediaries when it does not.
There are a number of steps that you should be taking in respect of that and it is always worth getting specialist advice on this if the need arises.
IR35 Considerations for Your Organisation
The first step is to decide where the responsibility for dealing with IR35 lies in your organisation, this is a matter that often straddles HR and payroll/finance and you need to make sure it doesn’t fall between the two stools.
The next is to create a list of who your organisation is contracting with, as IR35 applies to those who provide their services through a limited service company or via a supply agency.
The next stage, and probably the most challenging, is to decide which of your contactors falls inside IR35. HMRC have provided an online tool which can assist but it may not be determinative, in which case it might be worth taking specialist advice.
The Three-Part Test
HMRC applies a similar test as Employment Tribunals to determine employment status, but they often arrive at different conclusions on the same individuals, and it’s worth remembering that a Tribunal decision is not binding on HMRC and vice versa. The test is as follows:
- Mutuality of obligations – The individual agrees to provide work, in return for a wage for the skill and work that they provide.
- Control – The individual has given express or implied willingness to be under the employer’s control.
- Other factors – The other terms and conditions are consistent with a contract of employment, such as ownership of significant assets, financial risk, or opportunity to profit.
Although a three-part test, traditionally the first two elements have tended to be considered to be the most important. Until recently that is. The sands may have shifted slightly, following cases involving high profile TV presenters who claimed to be working freelance, including for the BBC and ITV. HMRC challenged their employment status and, in the recent case involving the presenter Adrian Chiles, HMRC lost because of the third part of the test.
What Does This Mean?
Now, it’s clear that it’s worth focussing on the third part of the test, we should think about some of the relevant factors which can include:
- Is the individual in business on their own account?
- Does the individual use their own office, including working from home?
- Does the individual provide their own tools?
- Does the individual provide services to a significant number of other clients?
- What percentage of total income does that end user contribute towards the individual’s financial earnings?
Employers, contractors, freelancers and consultants alike should take comfort from the shift in focus with, it would seem, greater significance now being placed on the bigger picture. However, this can be a complex area so we recommend seeking advice.