Contributions (NICs) in the construction sector where off-payroll labour is concerned. Known as the IR35 Reforms, businesses that use workers contracted via an intermediary – typically a personal service company (PSC) but also a managed service company, partnership or even an individual – will be required to determine if IR35 rules apply.
Previously, it was the responsibility of the PSC to make the decision. The revised rules ensure that individuals who provide services through their PSC pay income tax and NICs in the same way as if the organisation directly employed them.
For clients, there will be greater legal responsibility for determining the employment status of individuals and communicating this to the IR35 fee-payer.
Who Is The Client And Who Is The IR35 Fee-Payer?
To understand the roles of the client and the fee-payer, it is necessary to consider the supply chain as a whole.
The client is the organisation which benefits by receiving the worker’s services and is responsible for deciding whether he would have been treated as an employee if their services were provided directly, instead of through an intermediary.
In this case, the client will decide that IR35 rules apply, so the fee-payer – the intermediary – will be regarded as the employer in terms of income tax and National Insurance deductions. The fee-payer will, therefore, be the organisation that pays the worker.
To be a fee-payer, an organisation must fulfil some essential criteria. They must:
Be a resident of the UK or have a business registered within the UK.
Pay an intermediary who is controlled by or associated with the worker.
Not be controlled by the worker or one of their associates.
Not have a material interest held by the worker or one of their associates.
It’s important to note that, as the fee-payer, you should be notified of the worker’s status by the client; if you do not receive this notice, the payment should be passed on without income tax or NIC deductions. It’s always worth enquiring as to why you haven’t received a determination.
The IR35 Fee-Payer’s Responsibilities
If you are notified that you are the IR35 fee-payer when the worker’s determination is produced, off-payroll rules apply, and you are required to complete some tasks regarding their employment.
These responsibilities include:
Calculating the payment to be made to account for the worker, including income tax and NICs at the correct rate.
Deducting income tax and NICs from the payment to the worker’s intermediary.
Calculating and paying employer NICs.
Reporting income tax and NI deductions to HRC through Real Time Information (RTI).
Applying the apprenticeship level, if relevant, and making all necessary payments.
The Importance Of Obtaining Professional Advice
All companies who may be the client or IR35 fee-payer in a supply chain must meet their obligations under the revised regulations. Procedures should be in place to demonstrate that they have assessed the supply chain properly in the event of a Corporate Criminal Offence process under the Criminal Finances Act (2017).
Seeking professional, specialist advice is, therefore, highly recommended, and, at David Howard, we can ensure you understand your responsibilities and liabilities whatever your role in the supply chain.