EMPLOYERS: Are you ready for April 2020 tax changes?

From April 2020, employers will be liable for PAYE and NICs of contractors, in some circumstances. We explain how we can help you prepare for the changes. It is important to act now.

Do you engage contractors via a third party?

Maybe you use contractors who provide services to you via an intermediary such as their own limited company or partnership? Or maybe they are placed with you via an agency?

If so, currently, off-payroll working rules (known as ‘IR35’) require contractors who would have been employees if they were providing their services directly to you (the client), to pay similar tax and NICs to other employees.

What will change?

Currently, the intermediary is responsible for deciding the contractor’s employment status for each contract with a client/employer and for paying the PAYE and NICs due.

From 6 April 2020, medium to large private sector employers will be responsible for deciding the contractor’s employment status and, in some circumstances, will have to pay the contractor’s PAYE and NICs. The current rules will continue to apply if the contractor is engaged by a small employer.

Why should you act now?

You have only 6 months to get ready and making the wrong decision may be costly. Recently, three BBC presenters were ordered to pay £920,000 in unpaid tax because they incorrectly claimed they fell outside IR35. The HRMC has written to 1,500 contractors working for GlaxoSmithKline to ask if they comply with IR35 and will send letters to other contractors soon.

When will the rules apply?

If you are a medium to large employer as of 6 April 2020, the new rules apply from that date. Your size may change from year to year. It is important to carry out an annual review to determine whether IR35 still applies to you or will apply in the future.

What will employers have to do?

Employers will have to:

• For each contract with an intermediary, decide the employment status of the contractor and take reasonable care when making their decision;
• Document the decision in a status determination statement (SDS), which confirms whether or not IR35 applies, and provide reasons;
• Give the SDS and reasons to the contractor and the organisation with which they contract (the intermediary or the agency who placed the contractor with you);
• Keep detailed records of all SDS and reasons;
• Set up a status disagreement process that allows the contractor and the fee payer (see below) to challenge the SDS and to try and resolve any disputes;
• If a contractor or fee payer disputes the SDS, complete the disagreement process and inform them of the outcome within 45 days.

Who is the fee payer?

Typically, the person who pays the intermediary. It will be you if you contract directly with the intermediary.

Who will pay PAYE and NICs?

In most cases, the fee payer.

Will employers have to pay PAYE and NICs?

Yes, if they:

• are the fee payer and the contractor falls within IR35; or
• fail to decide and record the employment status of the contractor (SDS); or
• fail to take reasonable care when making a SDS; or
• fail to provide the SDS to the contractor or the organisation with which they contract; or
• fail to provide the outcome of the disagreement process and reasons within 45 days; or
• decide that the contractor falls within IR35 and the fee payer fails to pay or does not pay all of the PAYE and NICs due; or
• decide the contractor falls outside of IR35 and HMRC successfully challenges the decision; or
• become a small employer and do not notify the contractor.

Employers can be liable to pay the contractor’s PAYE and NICs, through no fault of their own. We recommend building protections in your contracts with intermediaries so that you can recover the cost of paying PAYE and NICs in these circumstances.

When will the contractor fall within IR35?

This depends on how you engage the contractor. Generally, the greater the control you have over how, when and where the contractor works and the less freedom they have to work for others, the more likely IR35 will apply.

You can use the HRMC online tool, check employment status for tax (CEST), to find out if a contractor falls within IR35:

https://www.gov.uk/guidance/check-employment-status-for-tax

The HMRC will stand by the result, unless the information provided was inaccurate. Not all cases will be clear cut.

Will we have to employ all contractors?

No, but this may be the best solution.

If you have decided that a contractor is an employee for IR35 purposes, this will increase the risk of the contractor becoming your worker or employee under Employment Law. This will provide increased rights for the contractor including the right to be paid the minimum wage, holiday pay and sick pay and may provide the right to join your pension scheme.

A contractor whom you have engaged through an intermediary for a long time, who must be available to work when you require them, has been integrated into your organisation and only provides services to you, is likely to be your worker or employee and will already have the same rights as other staff.

How can Radius Law help you get ready?

We can help you:

• Determine if IR35 will apply to you;
• Carry out an audit of your arrangements with contractors and determine which may fall within IR35;
• Review your contracts with intermediaries and suggest amendments to protect your business and ensure compliance;
• Develop a process for determining the employment status of contractors;
• Develop a status determination disagreement process;
• Provide guidance and training to staff on IR35 and the new processes;
• Carry out an annual review of your organisation to ensure ongoing compliance.

Getting ready will take time.

Please contact Sandra Martins:

[email protected]

07910 764347