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IR35 FAQ

IR35 is the biggest piece of legislation to hit the contractor landscape in recent history. As of April 2021 the rules for the taxation of contractors providing their services through a PSC (personal service company) are changing and will affect all contractors working in the private sector who do not meet HMRC’s definition of self-employment. One of the main changes is that the responsibility for determining your status will move from yourself to your end client.

National Skills Solutions are aware of the proposed IR35 changes and we have been lobbying our associated industry bodies about the importance of our contractors operating via Limited Company and the flexibility it provides for companies.

We are committed to supporting our contractor community and here we answer some of the most common questions to help you understand and adapt for the new rules:


What is IR35?
How does NSS intend to proceed?
End clients and IR35
HMRC and IR35
IR35 and my contract
Determining status
Financial and tax considerations

What is IR35?

1. What is IR35?

IR35 is a tax law introduced to tackle the problem of ‘disguised employment’. IR35 is intended to catch any individual who is supplying their services through a PSC but would otherwise be regarded as an employee of the end-client (this means the contractor would be deemed ‘inside’ IR35). If caught, payments received by the PSC would be subject to tax and NI as if the individual were employed by the end client. The resulting tax liability would fall upon the contractor. One of the main changes is that the responsibility for determining your status will move from yourself to your end client.

2. Is there a chance that the 2020 deadline will be extended?

There is currently no indication that this will be the case.

3. Does this mean that PAYE & Umbrella Company will be the only other options once this is put in place?

These two payment models will be more prevalent in the market place to ensure full compliance.

Is limited company status enough to cover all eventualities?

The end client determination will dictate tax status as to whether the limited company model is appropriate.

How does NSS intend to proceed?

1. What is NSS’s view on IR35?

NSS are aware of the proposed changes and indeed have experienced the challenges presented by this legislation when rolled out to the Public Sector April 2017.

The original consultation closed August 10th 2018 and both our clients and associated Trade Bodies (TEAM & Professional Passport) responded to the consultation document, we now await the detailed consultation from Government to be published. Once we have such detail we will be able to work with both clients and contractors to establish processes and procedures for establishing the tax status associated with the various roles undertaken by our contractors prior to implementation 6th April 2021. We will endeavour tokeep all parties updated to ensure a fully compliant supply chain.

2. Will NSS be reviewing the wording of their contracts so as not to leave them open to IR35?

NSS T&Cs will not be amended as we consider them fit for purpose. HMRC will always look beyond the initial contract paperwork and delve in to the actual day to day working practices of each assignment. NSS issue a business to business contract to all limited company’s and therefore believe that it is already fit for purpose.

3. What are NSS planning to do when the legislation changes? Do NSS intend to enforce an inside IR35 approach to their contractors? Are NSS going to make their contractors go PAYE?

NSS will work in collaboration with clients and contractors to ensure that reasonable care is demonstrated by the client when making assessments relating to the IR35 status of all individuals. If an individual is determined to be inside IR35 then they will be offered the option to be paid PAYE (or PAYE through their PSC) or via a PSL Umbrella Limited Co.

4. How will NSS support me in any potential IR35 negotiations with my employer?

NSS will work in collaboration with clients and contractors to ensure that reasonable care is demonstrated by the client when making assessments relating to the IR35 status of all individuals. We believe most clients will expect this exercise to be cost neutral as there may well be already established PAYE rates against the role. If an individual is determined to be inside IR35 then they will be offered the option to be paid PAYE (or PAYE through their PSC) or via a PSL Umbrella Limited Co.

5. Can NSS set up a series of companies with fewer than 50 employees which people can sub contract to this avoiding the latest IR35 change?

No, that would be against the spirit of the legislation and open NSS up to The Criminal Finance Act (POTAS) legislation.

6. What are the current intentions of NSS, Its agency partners and the end client to make IR35 determinations for currently subcontracted resources. Will this be a blanket decision or per role basis based on client decisions?

NSS will work in collaboration with clients, partner agencies and contractors to ensure that reasonable care is demonstrated by the client when making assessments relating to the IR35 status of all individuals. If an individual is determined to be inside IR35 then they will be offered the option to be paid PAYE (or PAYE through their PSC) or via aPSL Umbrella Limited Co.

End clients and IR35

1. How can the end client can support a contractor workforce if everyone is inside IR35 – what happens if the workforce leaves?

NSS will work in collaboration with clients, partner agencies and contractors to ensure that reasonable care is demonstrated by the client when making assessments relating to the IR35 status of all individuals. If an individual is determined to be inside IR35 then they will be offered the option to be paid PAYE (or PAYE through their PSC) or via aPSL Umbrella Limited Co.

2. How can the end client suddenly pay for holidays, sickness, pension contributions, etc. as if on the payroll?

The established PAYE rate for the same role will already cater for any applicable entitlements.

3. How are agencies working with end clients to ensure minimum disruption to the market over the next 12 months?

We are encouraging clients to put in place project plans with key dates/milestones in advance of the legislation date and will offer contractors ongoing support once clients pass the status decision down the supply chain.

We are encouraging clients to put in place project plans with key dates/milestones in advance of the legislation date and will offer contractors ongoing support once clients pass the status decision down the supply chain.

We are encouraging clients to put in place project plans with key dates/milestones in advance of the legislation date and will offer contractors ongoing support once clients pass the status decision down the supply chain.

HMRC and IR35

1. Who would HMRC pursue if they determine someone is inside IR35. Would it be the contractor or the end client?

Post April 2021 the fee payer (the agent) would be the first point of investigation, pre April 2021 any liability will lie directly with the PSC.

2. What is the HMRC’s definition of self-employment?

HMRC defines self-employment as workers who aren’t paid through PAYE, and don’t have the employment rights and responsibilities of employees. HM Revenue and Customs (HMRC) may regard someone as self-employed for tax purposes even if they have a different status in employment law.

IR35 and my contract

1. How will IR35 effect contracts that will be part way in when the legislation comes into force?

If the role is determine within the scope then contracts will be terminated and the payment model of either PAYE or Umbrella Company will be available. If deemed outside of scope then the contract will continue with any future tax liability moving to the Fee Payer post April 2020 and staying with the PSC for contracts pre April 2020

2. Are short term contracts liable to IR35? i.e. one month or two months

Each contract/assignment is looked up on by HMRC in their own right, so there are no hard and fast rules.

3. How does it work if I subcontract for two different companies?

Each role will need assessing on their own merit and may be that one role is deemed outside of scope and another role determined ‘in scope’.

4. Would I be able to carry on with my current role as a self-employed rather than a limited company?

No, self-employment is governed by the intermediaries legislation

5. Will sub-contractors be offered permanent positions?

The client may well take the opportunity to offer some contractors permanent roles based on business strategy

6. My company is based in the UAE, and my contract is with a UK based company, however all work I’m providing in support of the contract is not based in the UK. How will IR35 affect me?

We would advise that you obtain specialist advice from your accountancy however, if you are using a NT tax code then it may be opportune to move to a risk adverse PAYE model.

7. Will I have to work for more than one company in a financial year to qualify to remain as a limited company contractor?

Each contract assignment would be assessed on its own merit. If you have multiple clients then this may strengthen your IR35 status however each assignment would need to be assessed and you could potentially be inside IR35 on one assignment and outside on the other.

8. My limited company has other work streams does this automatically take it out of IR35?

No, each work stream would be assessed on its own merit.If you have multiple clients then this may strengthen your IR35 status, however each assignment would need to be assessed and you could potentially be inside IR35 on one assignment and outside on the other.

Determining status

1. Who decides if I am IR35 compliant? The client, the agency or me?

From April 2021, it will be the client’s responsibility to determine the IR35 status for all contractors operating via their own PSC’s

2. What will be the most important factor in determining if a contractor’s company is inside or outside of IR35? Will it hinge on whether the contractor’s company can provide anyone through his company who is qualified to carry out the contracted work i.e. not just the director of the company?

IR35 is a complex piece of legislation and all aspects of the working practices are taken in to account not just one element.

3. How do I get a straight answer on whether I’m inside IR35 or outside IR35?

NSS will work in collaboration with clients, partner agencies and contractors to ensure that reasonable care is demonstrated by the client when making assessments relating to the IR35 status of all individuals. If an individual is determined to be inside IR35 then they will be offered the option to be paid PAYE (or PAYE through their PSC) or via a PSL Umbrella Limited Co.

4. How many days must you NOT be working at a particular company for to comply with new regulations?

IR35 is a complex piece of legislation and all aspects of the working practices are taken in to account not just one element or contract length.

5. Is there a definitive way to define IR35 status?

Undertaking an ESI (Employment Status Indicator) test based on both working practice and the way a business is perceived will give an indication of potential tax status.

Financial and tax considerations

1. How will IR35 effect my tax payments and wages?

If deemed within scope and you wish to continue to be engaged via your limited company then a new contract will be issued and the rate will be subject to both tax and all NI deductions by the fee payer. Please speak to your accountant/adviser and they will be able to better advise you on the potential financial consequences.

2. Will the agency or the customer be liable for paying NI contributions for the contractor?

If engaged via an agency then relevant deduction from the rate will be made by the agency.

3. Would I be liable for past PAYE tax if I was found to be working outside IR35?

HMRC have stated that then do not intend to seek tax retrospectively however this approach could not be ruled out.

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