IR35 Compliance Checklist

After a turbulent few months and a proposed repeal, IR35 is now firmly back on the table.

That means the reforms to the off-payroll working legislation, which came into effect for the private sector in April 2021, will remain in place, making end clients responsible for determining workers’ employment status for tax.

With that in mind, it’s a good idea to make sure you’re still compliant with the rules. We’ve put together an IR35 compliance checklist of the key steps to take – but for a more comprehensive explanation and an overview of your position, talk to us.

Check whether you’re responsible

The first step is to check if you fall within scope of the IR35 reforms.

The 2021 change to the legislation only applies to medium and large organisations.

That means you’re responsible for determining a contractor’s employment status for tax purposes if two or more of the following conditions apply:

  • you have an annual turnover of more than £10.2 million
  • you have a balance sheet total of more than £5.1 million
  • you have more than 50 employees.

Unincorporated businesses (except for LLPs) will only need to apply the turnover test to determine if they fall within the scope.

You’ll need to be able to confirm the size of your organisation if your contractor asks, so be prepared with an accurate answer.

Determine employment status

If you’re a medium or large organisation, you’ll be required to use IR35 rules to determine the status of every worker who operates through their own intermediary. This is the case even if they are provided through an agency.

You’ll then need to communicate your determination using a status determination statement (SDS), and pass this on to the worker and the person or organisation you contract with.

As part of your SDS, you need to provide your conclusion and the reasons for coming to it.

Be sure to take reasonable care in your determination – ‘blanket determinations’ of multiple contracts in one go are against the rules.

Keep detailed records

It’s also your responsibility to maintain records of all your employment status determinations.

These should include the reasons you came to a conclusion in each case, and the fees paid.

Establish a process for disagreements

In case of any disagreements that arise from your status determination, you need a process in place to deal with them.

You’ll need to:

  • consider their reasons for disagreeing
  • decide whether to maintain or change the determination
  • keep a record of your determinations and the disagreement
  • confirm the date your determination is valid from.

IR35 has been controversial since it was implemented, with many contractors feeling determinations have been made unfairly. Be prepared to back up any decision you’ve made with solid reasoning.

Deduct and pay tax if the rules apply

If it turns out your contractor is working inside of IR35 – that is, essentially in the same way as an employee – and you are also the fee-payer, you’ll need to deduct the correct amount of income tax and National Insurance from their pay, and pay this to HMRC.

This should broadly be the same amount as an employee would pay, but you can find more details on the Government website.

Get in touch

This checklist covers some of the main points to consider, but to be certain that you’re operating within the rules it’s important to seek professional advice.

We can inform you on the IR35 rules, and help to manage specific contracts.

Talk to us to find out more.

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