Official data released by HM Revenue & Customs (HMRC) has revealed that the number of IR35 investigations has risen from 23 in 2010/11 to 599 in 2011/12. HMRC seem to be taking a more aggressive approach to tax cases and became particularly focused on IR35 about the same time that the extensive use of personal service companies (PSCs) in the public sector was revealed.
If you are providing services ‘off payroll' in the public sector you may already have been questioned about how you pay yourself. Current focus is on those whose daily rate exceeds £220 per day and whose contract lasts more than 6 months from August 2012. The reason for this focus is that these individuals are potentially “controlling persons” who are in management positions within the public sector.
Obviously there will be a number of external consultants who fit the criteria but are working on projects rather than managing staff. These consultants will often be working outside IR35 but may nevertheless find their contracts changed to include clauses giving the right for clients to “seek assurances, information and evidence to show that income is being treated correctly for tax and national insurance contributions (NIC) purposes.
If you are working through our umbrella company, you are already paying tax and NICs at employed levels so have nothing to worry about. Nevertheless you may be asked to provide copies of your payslips to demonstrate this.
If you are working through your own PSC you may be asked to provide assurance to the client that you are genuinely operating outside IR35. This you can do by:
- Taking HMRC's Business Entity test: if you score low risk which can be evidenced, this will provide your client with adequate assurance.
- Provide other evidence that you are outside IR35 - this could follow a contract review by HMRC's independent IR35 helpline or an IR35 review by PayStream or other experts who provide reviews.
Please note if you fall inside the scope of IR35, you will need to provide assurance that you will make a "deemed payment" to HMRC for employer NICs and pay employee NICs and PAYE on the remainder of the income.
We recommend that you act on any request for assurance asap as you risk having your contract terminated if you do not comply and failure to comply could result in the client informing HMRC.
PayStream's Compliance Team is ready to provide advice and answer any questions that you may have. Please get in touch with us through your dedicated Accounts team or directly by emailing email@example.com.
We strongly recommend that you take regular IR35 advice at the beginning of every assignment and at intervals during the assignment. Remember to also keep your contract paperwork up to date – the services, project outline and time frames should be covered by the contract schedule. If you are having problems obtaining paperwork from your agency, you may feel it prudent to create your own schedule with the specific information and keep on file; alternatively, send to PayStream who will save copies on your company records to assist with your administration.