IR35 is a set of rules for tax avoidance purposes that aims to reduce the amount of ‘disguised employment’ in UK organisations.
It applies to any individuals who work through an intermediary: personal services company (a ltd company that’s been set up by a single contractor (Director) to provide services to its clients) and partnerships; but the relationship between the client (employer) and the worker would suggest they have employment status. This is known as ‘’off-payroll working’’. If IR35 applies to the worker they will be treated as an employee for tax purposes, regardless of their self-employed status.
Sole traders and freelancers are not affected by the IR35 regulations.
What can you do if you discover a worker is affected by IR35
You have two options:
- End the agreement for services
- Appoint them as an employee
What will the cost implications be?
This all depends on your relationship with the individual (worker). If it’s a good relationship then you can start the employment immediately offering them the same terms and conditions as you’re employed staff. If there is an issue arising as the individual has expressed that they are dissatisfied with the fact that they may have lost out on employee rights then you may want to negotiate some form of financial compensation. You would need to give careful consideration towards this and also put an agreement in place to ensure that this person does it want to take this further through the legal process.
FAQ’s:
Do you know if you need to back date pay and benefits?
What date will the employment start from?
What do I do if the individual refuses to accept the status of being employed when we need their skills set?
What if I continue to let them work this way, will I incur any costs or fines?
How will HMRC know that I am appointing individuals and not including them in payroll?
If you have any unanswered questions or have a situation you would like to resolve, please get in touch:
T: 08004947749 E: hello@specialisedhr.co.uk
www.specialisedhr.co.uk