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IR35 checker

HMRC updates IR35 checker ahead of April 2020 introduction

Leighton Bower

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Leighton Bower

HMRC has updated its Check for Employment Status for Tax (CEST) service, which can be used by contractors and/or agencies placing staff to determine whether they should be classed as employed or self-employed for tax purposes (under IR35 rules).

On 6 April 2020, the rules which currently apply to the public sector will be expanded to the private sector.

For employers and intermediaries (medium and large businesses, recruitment agencies and third parties) they will need to decide whether the IR35 rules apply to an engagement with individuals who work through their own company.

Where it is determined that the rules do apply, the business, agency, or third party paying the worker’s company will need to deduct income tax and employee NICs and pay employer NICs.

IR35 checker updated

The tool was originally created in March 2017 by the government to check employee statuses but has now been updated following testing and feedback during the consultation stage.

Major criticisms were that the tool did often not provide a definitive answer where the employment status was more borderline or challenging.

In the updated tool new questions have been added and others revised, with thorough testing against case law.

What information is needed to complete the IR35 check?

Questions in the new IR35 checker cover worker’s duties, substitutes and helpers, working arrangements, financial risk, worker’s involvement and their contracts (including if working for others). The accurate input of data will be necessary for the CEST tool to function as required.

“With the updated tool now in place we are recommending that our clients begin to review their existing workforce as soon as possible, and to check their exposure to the new rules before April. We have included the governments recommended steps to prepare below.”

“As I have said previously, this is an area of concern for recruitment agencies. Particularly if we look at how public-sector bodies have been addressing this since it was introduced for them in 2017. There has largely been a forgoing of proper assessments, instead assuming that all contractors are within scope of the new legislation. This has led to lower incomes for contractors and subsequently pushes them to find arrangements to minimise their losses, often resulting in large tax bills later.”

“We will therefore be working with clients to help them develop the appropriate processes and procedures to manage this change”.

Leighton Bower, Rouse Partners.

How can employers and recruiters prepare?

To prepare for changes to the off-payroll working rules from 6 April 2020, the government recommends to:

  1. Look at your current workforce (including those engaged through agencies and other intermediaries) to identify those individuals who are supplying their services through PSCs.
  2. Determine if the off-payroll rules apply for any contracts that will extend beyond April 2020. You can use HMRC’s updated Check Employment Status for Tax service to do this.
  3. Start talking to your contractors about whether the off-payroll rules apply to their role.
  4. Put processes in place to determine if the off-payroll rules apply to future engagements. These might include who in your organisation should make a determination and how payments will be made to contractors within the off-payroll rules.

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This information has been produced by Rouse Partners LLP for general interest. No responsibility for loss occasioned to any person acting or refraining from action as a result of this information is accepted by Rouse Partners LLP. In all cases appropriate advice should be sought before making a decision.

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