Yet More on Employment Status and IR35

I shall attempt to keep this short and not pontificate upon the disaster which the same legislation caused when enacted upon the Public sector.

I will also keep the taxation issues simple, as HMRC have discovered that they are far from simple!

First and foremost does your end user fall into the category of small companies as defined by Companies House?

CH Criteria dictates a small company should have less than 50 employees (persons registered within the company pay scheme) should have a turnover, of no more than 10.2 million and a reserve balance sheet, at year end, of no more than 5.1 million.

If they are under this threshold none of the proposed legislation is relevant to you.

Given that they exceed the definition of a small company and fall in the area of the Chancellors “net”; that of medium to large, they will have to determine the status of the individual (not applying a blanket dictate) each contractor (PSC) should complete an (SDS) Status Determination Statement, from which the end user, or intermediary may deduce, with careful considerations whether the contractor is inside of IR35 or remains outside of IR35.

Should the end user intimate the contractor (PSC) falls inside the IR35, they then have to enter the PSC onto their pay scheme, not as an employee, but as a Deemed Employee or De Facto Employee, attracting no employment rights with regards to hours, overtime, Holiday pay, SSP, pension schemes or company loyalty schemes. Their task is to enter them using letter code “A” if applicable, and apply BR coding, subtracting income tax and NIC as dictated by payroll software. The balance of each entry forms the payment made under PSC inside IR35, it being the invoice value minus income tax and NIC subtracted by the end user.

This we envisage as being both complex and onerous on the end user, the results of which will reflect in less contractors migrating to “on payroll” and taking their services elsewhere to the smaller end users.

I shall reserve comments such as “Can of Worms”, restricting my observations to the fact that independent contractors deliver flexible options to varying workloads and patterns, something that full employment fails to achieve without serious misuse of labour, money and time. The independent contractor is the lifeblood of British industry, offering flexible, variable solutions to ever changing working patterns and seasonal requirements.

I hasten to add that HMRC’s delivery of RTI (real time information) to the PAYE schemes, had a specific remit in its application, that taxpayers would be able to engage in multiple employments in any one tax year and it remains, the one thing the RTI system still cannot accommodate!