Tim Palmer, Gravita’s Tax Consultant, considers the present IR35 problems for bigger engagers.
Nowadays the onus is very much placed on larger organisations who regularly engage personal service companies to decide if the intermediaries legislation (commonly known as IR35) applies to their particular engagement.
For example, you might have a large engager Lewis, who has turnover greater than £10.2 million and meets other tests, regularly engaging Fred who trades through his company Fred Ltd.
In general terms, Lewis has to decide if Fred was working directly for them, without the protection of his company, would he be a deemed employee of Lewis?
There are various factors and considerations that Lewis has to take into account such as:
- Is there mutuality of obligations between Lewis and Fred?
- Does Lewis control Fred?
- Does Fred have a substitute?
- Does Fred pay his own public liability insurance?
- Is there a financial risk within the engagement for Fred?
Let us assume that Lewis asks its accountant for assistance in this matter and between them they correctly come to the conclusion that Fred would be a deemed employee of Lewis without his company being in the middle.
What does Lewis have to do next?
- Lewis has to give a ‘status determination statement’ to Fred, explaining that he would be a deemed employee and that the engagement is caught to IR35.
- Lewis deducts PAYE and NIC from the payment to Fred Ltd.
- Even though the payment is made to Fred Ltd, for tax purposes it is treated as Fred’s personal employment income.
At the end of the tax year, Lewis will give Fred a P60 form, showing the fees paid and the PAYE and NIC deducted. Fred will pass this form onto his accountant who prepares his self-assessment income tax return.
The accountant will enter the details on Fred’s tax return alongside his other personal income.
The problem that many personal service companies are experiencing in practice is that frequently the large engagers are getting the IR35 status decisions wrong. Many contractors feel that they have been wrongly classified and it is extremely difficult in practice to resolve the dispute.
What next?
Tim Palmer will be presenting a live one hour webinar on IR35, on behalf of Gravita, on Wednesday 15th January 2025, 9 – 10am. Click the button below to sign up to the webinar.
Tim will go through the IR35 problem areas and how to resolve them. Relevant planning opportunities will also be considered.
If you have any questions or concerns regarding the information above, please email hello@gravita.com.
