Do you use “self-employed” contractors in your equine and agricultural business? If so, then you may be caught by the changes to tax law coming in from 06 April 2020. Read on for more information….
For some time, there have been different rules in relation to the tax treatment of “self-employed contractors” in the public sector than in the private sector. Well, these changes are now coming to the private sector and so may affect your equine or agriculture business. These rules are called the IR35 Rules.
What do the IR35 Rules cover?
The first thing to say is that the new IR35 Rules only cover a situation where you use “self-employed contractors” via another company or business. This is often their own personal service company but may also be an agency. It does not apply to those “self-employed contractors” who you have a direct relationship with (although see later on for advice on these).
Essentially, the IR35 Rules mean that the burden for assessing what tax should be paid will flip onto you as the end-client (currently this obligation is on the contractor themselves). So, this means as a business you have an assessment to make as to whether these guys are genuinely “self-employed” contractors, or whether (in fact) but for the company you engage with, they would be likely to be considered as an employee.
If so then they would be considered as “deemed employees” and you would then be responsible for ensuring that their fees accounted for, for the correct tax and national insurance deductions, by putting them through PAYE.
What is the purpose of IR35?
Essentially the purpose of the IR35 Rules is to ensure that companies are not hiding employees under the guise of self-employed workers, consultants or contractors to avoid paying tax and NI, and of course to make sure that HMRC is receiving all the contributions that it should do.
Who will this affect?
The implementation of the so-called IR35 rules is going to affect two defined groups:
- Medium / large businesses -, so you will not be caught by the new IR35 Rules if you can satisfy at least 2 out of the 3 points below (as you will be classed as a small business):
- You employ less than 50 people
- You have no more than £5.1million on your balance sheet.
- Your turnover is less than £10.2million
- Individuals operating as consultants / self-employed workers
Now it may be that your equine or agriculture business is not caught by this, as it may be classed as a small business. What you should know is that it is highly likely that these IR35 Rules will be further extended over the next couple of years, meaning you would be brought into their scope and covered by them.
What do I have to do?
If you are potentially affected by the extension of IR35, then first and foremost you will need to carefully assess the working relationship your business has with its “self-employed contractors”. This is where our experts can assist. In the employment team we have considerable experience in conducting these assessments, in particular in the equine and agriculture industry.
The new regime means that the responsibility for determining whether the IR35 rules apply will move onto the business receiving the services of the individual, and not the individual themselves. This flip of responsibility puts a greater burden on your business.
The financial impact of IR35 is therefore significant. The biggest difference from the old regime is that the responsibility is on the company receiving the services of the “deemed employees” and they would then have to pay any tax or NI due on top of the fees paid to the contractor.
What can your business do between now until April 2020?
Use this time as an opportunity to review your current processes in terms of “self-employed contractors” - when did you last review your self-employed, off-payroll workers?
We would suggest that you should complete a further review in order to ascertain the true current status of your “self-employed contractors”
When undertaking this review it is important to note that the usual employment principles of employment status apply. Therefore an expert knowledge of employment law is key. This is where the employment experts in our agricultural and equine team can assist you.
There is no one size fits all test as to whether someone is a genuine self-employed worker or a “deemed employee”. In assessing this, a Tribunal would undertake a balancing exercise. They do not put focus on the written contract, but look at the reality of the situation in practice, having particular regard for the following key pointers (but be warned, other factors can count too):
The more control the company has over what, how and where the contractor works, the more likely they are to be considered a “deemed employee”.
If there is a genuine ability for the contractor to send someone else in their place, rather than personally completing the work, then this will tend to indicate that they are a genuine self-employed person. However please note that this must be genuine and so examples of actual substitution will assist. It isn’t sufficient just to have this as a clause in the contract.
- Mutuality of obligation
Is the company obliged to offer work? Is the contractor obliged to accept any offer of work? If the answer to one, or both of those questions is yes, then they are more likely to be considered as a “deemed employee”.
Other factors considered are whether the contractor has a financial risk undertaking the work; the type of contract in place (which isn’t determinative but is a consideration); and how integrated the contractor is with the company i.e. are they “part and parcel” of the company or do they sit outside. Key factors to consider here are whether they are provided with equipment, email addresses, and to what extent any rules of work apply to them.
Even if you don’t think you are caught by IR35 this time around, having an assessment of the status of your “workers” and “self-employed contractors” is always a sensible idea. This is because it is possible, and actually very common, that those you engage as “casual workers” or “self-employed” that you take on directly (i.e. no company in between you and them) could be considered as employees and therefore have many, many more employment rights than you thought.
This happens far more often than you would think and a Tribunal will look behind any label you try to attach to the relationship so you may be hit by a big claim or bill that you weren’t expecting. Our employment experts in the agricultural and equine team are experienced in undertaking employment status assessments and can help you.
Individuals operating as consultants / self-employed workers / contractors
If you are a consultant or self-employed worker either contracted out by your own company or another business, use this time to review your working arrangement and how this might change.
Further advice and assistance
Should you wish to discuss this further, please feel free to contact me directly to discuss on firstname.lastname@example.org.
We will also be hosting a full IR35 event, along with Laura Parr, Head of Employment Tax at Smith Cooper, on 10 February 2020. Click here to find out more and book your place.