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.
Covid-19 has had a serious impact on self-employed business people. The Government's grant scheme to support them, the Self-Employed Income Support Scheme, is explained in the Covid-19 information pages included below.
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.