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IR35- How will the new rules affect client businesses and what are their obligations?
16 Feb 2021
From 6 April 2021 the off payroll working rules will place significant new obligations on medium and large client businesses – business which engage the services of workers through their own personal services companies (“PSCs”). The rules apply whether the medium or large business engages the worker’s PSC directly or indirectly through an agency.
Status determination
Where the new rules apply the client business will be required to assess the status of each of their PSC workers. The question they should ask themselves is whether, if the worker was providing them services directly rather than through their PSC, would an “employment-like relationship” exist?
What are the factors?
There are a number of factors that need to be taken into account when considering whether an employment-like relationship exists. Some of these include
Control – to what extent does the client determine when, where and how the work is done?
Integration – how integrated is the worker into the business of the client? Do they have a client business email address, do they have line management responsibility, and are they subject to other policies and procedures?
Financial risk – does the worker take any financial risk? Do they have to provide their own insurance? Who has to bear the cost if something goes wrong with a piece of work?
Substitution – is the role personal to the worker? If they are unavailable can they send another person to complete the work on their behalf – and if they can who has the final say on this?
There are numerous factors to be weighed in the balance and no single factor is decisive one way or another – a reasonable assessment has to be made.
What happens next?
Having made a determination of the worker’s status the client then needs to issue a status determination statement to inform the worker 9and perhaps other businesses in the supply chain) of their decision, giving their reasons.
The worker then has 45 days to object to the determination – if they object the client then has to consider the objection and either confirm or change its determination. The client has a further 45 days to do this.
What if we don’t meet these obligations?
The client is required to take “reasonable care” in making the status determination. If you fail to take reasonable care (or fail to issue a status determination statement at all) the worker’s tax and national insurance contributions will become the client’s responsibility – a potentially very expensive outcome!
In the next of our series of posts we will look at the new IR35 rules from the point of view of the worker…
Visit our hub
To help you check on your preparations for the changes to IR35, we have created the IR35 hub where you will be able to find helpful resources and information.
Written By Paul Brown | Tax Partner
Read more in our IR35 series
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