PAYROLL INSIGHT
Intermediaries legislation – Is it working as intended?
Tim Bridgett, employment taxes senior manager at PSTAX, explore some of the practical aspects of the new intermediaries legislation as well as issues that have been raised by clients since its introduction
B ack in 2000, the government resolved to tackle the avoidance of employment taxes by workers using their own personal service companies with the introduction of the now-infamous ‘IR35’ legislation. In 2015, the government announced their concerns that these rules were not working as effectively as they should, estimating that non-compliance with the legislation was costing the Exchequer more than £400million in lost tax and National Insurance contributions (NICs). The new IR35 legislation, which was issued earlier this year, sought to remedy these issues by moving the responsibility to public authorities to make determinations as to whether the IR35 rules applied and to make the appropriate tax and NICs deductions from off-payroll engagements. The ‘old’ and ‘new’ IR35 rules When the IR35 rules were originally released, the aim was to capture those workers who had some level of control over their own company and could decide to pay themselves in dividends rather than a salary. HM Revenue & Customs’
(HMRC’s) current guidance for private sector engagements still refers to an intermediary business being a limited company that the worker controls. In simple terms, to have a ‘controlling interest’ in a company would require an individual to have more than 50% of the shareholding. ...the worker must have a material interest, i.e. at least 5% Schedule 1, clause 61N of Finance Act 2017, regarding the off-payroll engagements for the public sector, confirms that the requirement is to apply the new rules if one of the conditions of liability are met. Condition A is that the intermediary is a company and, to be a company for the purposes of these rules, the worker must have a material interest, i.e. at least 5%. However, if you use the employment status service (ESS) tool (see below) and get an ‘in scope’
determination it then says that the specific conditions of liability must apply and the link takes you to the general HMRC guidance on the IR35 legislation. This says that for a company IR35 rules must be followed if either of the following applies: ● the worker has a material interest (as above), or ● the (non-employment income) payment or benefit arising from the relevant engagement is received or receivable directly from the intermediary and can reasonably be taken to represent remuneration for services provided by the worker to the client. In other words, the worker doesn’t have to have a 5% interest in the company under the general IR35 rules for public sector engagements. Therefore, if payment can reasonably be taken to represent remuneration for services provided then it is caught by IR35 in any case, regardless of whether the worker is a shareholder or not. Use of the online tool To aid organisations in making the determinations of whether the
| Professional in Payroll, Pensions and Reward | October 2017 | Issue 34 30
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