Off-Payroll Working Legislation | PayStream

The obligations include:

1. Assessing whether a role is inside or outside IR35.

2. Passing on the SDS to the contractor and agency and reasons for the decision.

3. Using reasonable care in making its decision on IR35.

The legislation doesn’t say that a client will be liable if it gets a decision wrong. If the client has taken reasonable care but just got it wrong, the client will not be liable but the agency (as the fee payer) might.

In the private sector, where a client is classed as small as per the Companies Act 2006, it is exempt from the rules. In this scenario, the contractor must decide their own IR35 status. The fee-payer is also off the hook since the contractor is responsible for PAYE and NICs.

A client qualifies as small if it meets two or more of the following requirements:

1. Annual Turnover: Not more than £15 million

2. Balance sheet total: Not more than £7.5 million

3. Number of employees: Not more than 50

There are IR35 review services tools available such as HMRC’s Check Employment Status for Tax (CEST) tool, however the accuracy of this tool has been debated. As an alternative, you can use an independent IR35 review service, such as IR35 Comply.

There is a new statutory client-led disagreement process. If the contractor or agency don’t agree with the SDS, they can make this representation to the client. The client then has 45 days to either inform the contractor that the SDS is correct or, to issue a new SDS. If the client fails to comply with this process, it becomes the fee-payer.

When a contractor, who typically operates outside IR35, secures a new contract that has been assessed as inside IR35, they still have a few options on how to proceed.

They can continue working via their limited company, but the income from that contract would be subject to off payroll deductions, meaning tax and NICs are deducted at source. Taxes would therefore be similar to being a PAYE employee.

Alternatively, they may be paid directly through the agency’s PAYE payroll, or choose to work via an umbrella company. In practice, many contractors’, agencies and end clients prefer the umbrella route, as it reduces their administrative responsibilities and helps ensure compliance.

If you would like more information on what an umbrella company is and how it works, you will find more help and advice here. PayStream's umbrella company helps contractors get paid on time, every time, stay HMRC compliant and provides all the benefits of continuous employment including all the lovely perks that go with it, both big and small.