IR35 four months in: What`s happened so far?
With lockdown now over, things are slowly but surely starting to return to something like normal – even if that’s a ‘new normal’ in some cases. However, one thing that’s not the same as it was pre-lockdown is IR35. Although the reforms were initially delayed from their original April 2020 launch date, they finally came into force on 6th April 2021.
Four months on, it seems like an ideal time to look back and see what’s changed and what’s been happening in IR35 news.
IR35: What changed?
IR35 is the legislation put in place to uncover ‘disguised employees’ and to prevent contractors from taking advantage of lower tax rates while essentially being a permanent employee. If you are found to be ‘inside’ IR35, you should be taxed at source through PAYE like an employee, but if you are ‘outside’ IR35, you continue to pay taxes via Self-Assessment as usual.
The private sector IR35 reforms of April 2021 change where responsibility sits for declaring a contractor’s IR35 status, as well as where the tax liability rests.
If your client is a medium or large business (the changes do not affect engagements with small businesses) then they are now the ones with the responsibility of issuing your Status Determination Statement (SDS), declaring you inside or outside IR35 for that particular contract.
And rather than the tax liability sitting with you (as it still does if your client is a small business), it now sits with the fee payer, whether that’s the end client or a recruiter.
Notable IR35 news
There has been no shortage of IR35 news in recent weeks, including some very high profile stories. One of the big stories to break was the news that football presenter Gary Lineker was being targeted by HMRC for a £4.9 million tax bill on the basis of IR35. The First-Tier tribunal declared that Lineker was inside IR35 for the years in question, where he provided services to the BBC and BT Sport through Gary Lineker Media (GLM Ltd), which was owned by him and his then wife.
The case will now go to the Upper-Tier Tribunal where Lineker will no doubt be hoping for a similar result as the likes of BBC journalist Kaye Adams. However, with so much money paid out as a result of the pandemic, HMRC are looking to claw back as much cash as possible.
As Andy Vessey, Kingsbridge’s Head of Tax points out, “they are not going to give that pot of gold [Lineker’s £4.9 million bill] up lightly, particularly during a time when the Treasury needs every penny it can get its hands on,” so Lineker may find himself in this for the long haul.
Lineker will certainly be hoping his Upper-Tier Tribunal doesn’t go the same way as Robert Lee of Northern Light Solutions Limited, who lost his appeal, leaving him with a reported £70,000 tax bill. Lee lost his case on all three major pillars of IR35: Mutuality Of Obligation (MOO), right to substitution, and client control.
There were also several red flags when it came to the minor tests as well. Lee’s case does, however, represent a very good model of how IR35 is assessed.
Also in the news is the story that UK courts have ruled that Deliveroo couriers are, in fact, self-employed. This has been rumbling on since 2017, with the Independent Workers’ Union of GB (IWGB) fighting to have Deliveroo couriers classified as ‘workers’, giving them the right to join a trade union and bargain for better terms. Some couriers even argued they should be classed as employees, with rights to sick pay and holiday pay.
Ultimately, though, the court upheld previous rulings that the couriers are self-employed, with the couriers’ right to use a substitute – a key IR35 indicator – a crucial part of the decision. Had this been a tax case, these riders may well have been found ‘outside’ IR35 – genuinely self-employed, in other words – on this basis.
Over the last few months, Kingsbridge’s Head of Tax, Andy Vessey, has been answering your IR35 questions in his regular Ask Andy column. We initially thought we might have retired the column around May, but it’s still goings strong, with many contractors, businesses and recruiters wanting to ask Andy, who has worked with IR35 for over two decades and has defended more than 500 IR35 cases, and won most of them.
CEST still causing problems
HMRC’s Check Employment Status for Tax (CEST) tool has long been a thorn in the side of contractors, with its inconclusive results and unwieldy questions. However, new official usage data, reported by ContractorUK, has revealed that around 21% of uses of the tool result in ‘unable to determine’ results. That represents HMRC not being able to decipher its own rules in around one in five cases.
These statistics have resulted in questions being asked by top industry figures on what support HMRC offers to those who receive an indeterminate result, and why the tool isn’t fit for purpose.
There are, of course, alternatives to CEST, which we handily outlined on our blog a few weeks ago. One of these is our own Kingsbridge IR35 Status Tool, an award-winning service developed by Andy Vessey himself. It asks between 29 and 34 carefully crafted yes/no questions (the number of questions adapts depending on those answers, it’s that responsive) to garner a full picture of your contract and working practices and issue you with an inside or outside IR35 status determination, accompanied by a full report.
If, however, your status is indeterminate, your case is passed to one of our in-house IR35 specialists for a manual review. After carefully examining your answers (and possibly asking you a few more questions) they’ll be able to give you a determination. All for just £50 plus VAT.
Visit the tool’s website to get your own IR35 status determination and remove the guesswork for yourself and your client, giving yourself peace of mind in the process.