IR35, Employment and Self-Employment
Instead of engaging individuals to carry out work as employees – by giving
them an employment contract, operating PAYE, and deducting tax and NI from
the amounts it pays them - many businesses engage some or all of their
workers in a different way. In some cases it will suit the business and/or
the individual worker if the worker does not work as an employee but
instead on some other basis.
If the individual is not engaged as an employee, there are several other
ways in which they might be engaged. For example, they might be engaged
either:
· as a self-employed person who contracts with the business personally; or
· through his/her own intermediary personal service company (“PSC”) which
contracts with the business - PSCs are explained below; or
· through one or more other intermediary companies. Such intermediaries
might be “umbrella” companies or they might be agencies who provide
individual workers to businesses.
For both the individual worker and the business, it might be difficult or
confusing to decide whether the worker should be an employee, self-employed
or working through a PSC or other intermediary. It can also be difficult to
put in place the necessary arrangements to implement the chosen means of
working in a way which is clearly legally valid and effective. Whether in
any particular case an individual worker’s legal status is that of an
employee or is instead a self-employed person is a key tax and employment
law issue. The “Employment and Self-Employment” information pages cover
that issue.
If the worker is using a PSC then the situation is further complicated
since IR35 rules (tax anti-avoidance legislation), explained in the “IR35”
information pages below, might apply to the engagement of a PSC by a
business. It is important, in order to avoid confusion, to understand that
where a worker is engaged directly, not through a PSC, only the “Employment and Self-Employment” pages are
relevant: if no PSC is to be involved, there will be no need for you to
read the “IR35” pages as well. However, if a PSC or other intermediary
company will or might be involved, you will also need to read the “IR35”
pages to see whether and how the IR35 rules might apply. Where a PSC is
involved some of the issues covered under these “Employment and
Self-Employment” pages will still also be relevant. (The “IR35” pages cross
refer to the “Employment and Self-Employment” pages where relevant.)
The “IR35” pages below incorporate changes to the IR35 rules that we expect
to come into effect on 6 April 2021. (HMG originally proposed to bring in the changes on 6 April 2020 but has put back the date in the light of the Covid 19 crisis.) No changes in the rules will take
effect until April 2021 (and they will not have retrospective effect) but for
convenience we have stated the position as if the expected changes were in
force now. If, when they are enacted at any point in 2020/1, the changes
differ from what we expect, these information pages and the Guidance Note
will be revised if and as necessary.
These information pages, the
Guidance Note on Employment, Self-Employment and IR35
and the Checklists will help you navigate the issues and alert you to some
of the pitfalls in these tricky areas. Since the issues need to be
addressed by both businesses and individuals, the following pages look at
the issues from the separate viewpoint of each of them. The Guidance Note
covers the issues more fully than these pages, and it is recommended that
you read that Note as well.
You might find it useful to use one or more of the
checklists
in the Business Folder, and to cross-refer to these pages and the Guidance
Note as you do so.
Your use of suitable agreements will help spell out the relationship that
you intend to create between the parties. However, even where that
relationship is stated to be a contract for services relationship either
between a worker and a business or between a worker’s PSC and a business,
there will still be a risk that an employer-employee relationship (for
employment law or tax purposes) might exist between the parties.
It is always advisable to take relevant legal advice as necessary on your
particular circumstances before making any decisions, taking any action, or
using any of the various template agreements in relation to engaging an
individual or a PSC or other company to provide any services to a business.