It’s now well over a month since the IR35 reforms came into effect, shifting the liability of your IR35 status from you as the contractor to your fee-payer. But what exactly does that mean for you? And what costs would you be subject to if you are still liable for your IR35 status?
We take a look at this, and what happens if you want to appeal a decision made by HMRC.
Who is liable for IR35 costs?
Now that the IR35 reforms are here, the liability for paying the correct taxes and national insurance payments has shifted from you as a limited company contractor to your fee-payer. It is up to your client to determine whether you are inside or outside IR35, and this result is then passed down until it reaches your fee-payer.
If you are deemed inside IR35 by your client, then you will be subject to the same national insurance and tax payments as if you were an employee of the company. In this eventuality, your fee-payer would need to deduct these payments from your payslip.
If your end client does not fulfil their duty and provide you with an inside or outside determination, then if HMRC do come knocking, it would be your end client who would be subject to any fees and charges owed.
Equally, if your fee-payer has received an inside IR35 status determination and not acted on this, then they would then become responsible for the charges owed.
When are contractors liable for IR35?
It’s worth noting that there are a few instances when you as the contractor are still responsible for assessing your IR35 status. One example is if you are working for a small company, as deemed by HMRC.
HMRC’s definition of a small company is that at least two of the following must apply:
- a turnover of £10.2 million or less;
- £5.1 million or less on its balance sheet;
- 50 employees or less.
Furthermore, if you are working for an overseas end client with no links to the UK, then the responsibility for your IR35 would remain with you. You can find out more about how IR35 applies when working outside the UK here.
What above previous years of IR35?
If you had previously declared yourself as outside IR35, but have now been assessed as inside IR35, HMRC have said that they would not use this change as a trigger to investigate you.
However, if they believe that you have committed fraudulent or criminal behaviour, or have legitimate cause to investigate you, then they will do so.
What if HMRC do investigate?
If HMRC investigates you and believe that you should have been inside IR35 when you have placed yourself outside IR35, then the first step is that HMRC will demand the retrospective PAYE tax and NI, plus any interest and penalties owed.
As of the 6th April 2021, the liability for these charges would sit with your end client or fee payer.
However, if HMRC are investigating a decision that was made before the IR35 reforms, or if you are still responsible for your IR35 status (for example working for a small company), then the liability for any charges would be yours to bear.
What if I want to appeal an IR35 decision?
If you do not agree with a decision that HMRC has given you, then the next step would be a first-tier-tribunal. This can be lengthy process, and you would need to account for the cost of legal defence costs, unless you are backed by an insurance policy.
How can I protect myself from IR35 costs?
To protect yourself from IR35 costs, you could look at IR35 insurance. One option is Kingsbridge’s IR35 Protect insurance.
Protecting everyone in the supply chain, the insurance will cover whoever is deemed liable by HMRC; whether that is you, your end client or fee-payer. This all-encompassing cover can also make you a more desirable hire, as it mitigates the risk to your agency and client.
Cover includes up to £100,000 of unpaid tax, interest and penalties enforced by HMRC, as well as IR35 status enquiry defence costs, up to £100,000. Plus, with IR35 protect premium, you get unlimited access to our award-winning status determination tool.
Get a quote today by clicking below or give our helpful team a call on 01242 808 740.
