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IR35 / Off Payroll Working within the Construction Sector
4 June 2021
The new Off Payroll Working rules for the private sector have been in place since 6th April 2021, after having been delayed from 2020. The rules were designed to ensure individuals working like employees, but through their own limited company (often known as a ‘personal service company’ or ‘PSC’), or other intermediary, pay broadly the same Income Tax and National Insurance contributions (NICs) as individuals who are directly employed. These rules are more commonly known as ‘IR35’.
The freelance and contract workforce has steadily risen in recent years, particularly within the construction sector under the Construction Industry Scheme (CIS). Latest ONS statistics show around 38% of those working in the sector are self-employed.
The IR35 changes in April will have been felt throughout the sector, for both employers and contract workers. These new rules from April 2021 apply to medium and large businesses engaging contract workers and rule changes are largely concerned with shifting the responsibility for determining tax status away from contract workers trading through their own companies and onto the businesses engaging them.
IR35 applies to all those operating via a personal service company, so even if the obligation isn’t on the business engaging the contract worker, the contract worker will still need to consider IR35 (something which has been the case since 2000).
What should you be doing?
Construction businesses now have more considerations when engaging contract workers as making the wrong IR35 assessment may result in some hefty fines.
Management will need to decide if existing arrangements with contract workers are sustainable or whether payments should be taxed as if they were employment income. Reassuringly, HMRC have said it will only apply the rules retrospectively in cases of suspected fraud or criminal behaviour, so now’s a really good opportunity for businesses to check the IR35 status of contract workers to make sure they’ve been compliant with the rules since 6 April 2021.
In the construction sector, it’s often the case that projects can go on for a long time and as such, the risk increases as the months pass and a regular review of all contract workers is therefore essential.
IR35 takes precedence over CIS and the end user needs to assess each contract worker individually.
Once a decision’s been made, this should be communicated to the contract worker and if they’re deemed to be within IR35, then PAYE and NIC needs to be deducted from any post 6 April 2021 payments.
In large construction companies, the issue of employment status can fall between different departments, which can often lead to poor decision-making. As a consequence, many companies are making blanket determinations and dictating that suppliers such as small subcontractors can’t use self-employed people on projects, which doesn’t need to be the case.
The rules surrounding IR35 can be complex, but it doesn’t need to be. So, get in touch if you employ freelance or contracted workers to see how we can help reduce the impact of IR35 on your business. For an IR35 review, call us on 01604 746760 or email our tax team.
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