One of the many headlines in September 2022 of Kwasi Kwarteng’s ill-fated mini budget was the government’s plan to reverse the IR35 changes that it had made for public sector contractors in 2017 and private sector contractors in 2021. Less than a month later, Jeremy Hunt announced that the government had cancelled its plan to reverse those IR35 changes. Therefore, the position for public sector contractors and private sector contractors remains the same as it has been since April 2017 and April 2021 respectively.
What does this mean and who is affected?
The purpose of the IR35 regime is to stop contractors, who provide their services to companies via an intermediary (usually a personal service company (“PSC”)), from avoiding paying employment taxes and national insurance contributions, if the working relationship between contractor (via PSC) and client is deemed to be an employment relationship.
To determine whether there is an employment relationship, consider:
- Is there an agreement between the PSC and the end user client for the individual to provide personal services to the client?
- If the agreement were between the individual and the end user (without the PSC intermediary), would the individual be treated by the client as an employee?
The first question should be straightforward to answer. However, the second question may require a bit more thought and analysis.
To assist you with this second question, there are several factors to consider, which should help you determine whether or not the nature of the relationship between the individual and the end user client is an employer-employee relationship but for the existence of the PSC as an intermediary. These factors are:
i. Is there a mutuality of obligation between the parties? I.e., is the client obliged to offer work and, if so, is the individual obliged to do the work when offered it?
ii. Is there the right of substitution? Can the individual, if they so choose, decide not to do the work and appoint someone (anyone) else to do the work for them instead?
iii. What level of supervision over the work is there by the client? What degree of control and direction does the client exercise over the individual when the individual is carrying out their work?
iv. Is there integration by the client of the individual into the client’s business? Is the individual effectively treated as if they were one of the client’s employees?
The answers to these questions will determine whether or not there is a relationship of deemed employment between the parties. If there is a relationship of deemed employment, IR35 applies.
Andrew Edwards, Solicitor, Employment
Andrew advises clients on the whole spectrum of employment work, both contentious and non-contentious. He is experienced in defending all types of Tribunal claims and regularly advises employers, large and small, on both day-to-day HR problems and big picture issues
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