IR35 Tax Changes: Engaging workers via intermediaries
The Government’s clampdown on self-employed staff “off the books” came into effect earlier this month.
These IR35 tax changes are essentially an attempt to crack down on tax evasion and avoidance by paying people as freelances when they should be paid as staff.
We’ve have worked with our lawyer’s and employment tax adviser to put together a contract which can be sent to the Agencies you engage with for the provision of drivers in order to attempt to mitigate those risks. View our Agency Letter here.
We have drafted this document on the logic that those drivers engaged via an intermediary, who are not working via a personal service company, will be employed workers for tax purposes if they are required to drive your vehicle.
Therefore, the intermediary will be required to operate PAYE and National Insurance on payments they make.
If the driver provided by the agency is working via a personal service company, then you will be required to determine whether they are caught by IR35.
HMRC have the CEST tool (Check Employment Status for Tax) on their website which will help you decide their position for IR35.
When you have decided on their status for IR35 you are required to issue a Status Determination Statement to both the driver and their intermediary (the agency, or limited company if you engage with them directly). If the arrangement is within IR35, then the intermediary will have to operate PAYE and National Insurance on payments made and liability passes to them to do so provided that the SDS has been provided to them.
Given that, if the intermediary fails in their responsibilities to operate PAYE and National Insurance, HMRC can seek to recover this from you it is important that you carry audits of the intermediary to ensure they are complying with their responsibilities. We believe that such audits should take place at least quarterly.
It is important to bear in mind that this draft contract sets out the rights to recover any unpaid taxes from the intermediary, but this will only be effective if they have funds sufficient to settle any such claim.
Care is therefore required to ensure that if there is a risk of non-compliance by the intermediary that this could leave you with an exposure with HMRC whilst not being able to recover the amounts concerned in damages. It is also important that you carry out a status determination on each occasion if applicable and advice should be sought if you require any assistance in doing do.
In addition to the above please also be aware that we have seen evidence of some Agencies using the Substitution clause as a way of getting around IR35.
Please see the Substitution Guidance for greater detail to ensure your are aware of the implications of this clause.