Edward Tudor | UK Business Advisors

IR35 in the Public Sector

How could this affect your business?

Introduction

IR35 is a piece of legislation that allows HMRC to collect additional payment where a contractor is an employee in all but name.

If a contractor is operating through an intermediary, such as a limited company, and but for that intermediary they would be an employee of their client, IR35 applies.

New rules for IR35 will apply from the 1^st of April 2020 in the Private Sector as they have been applied in the Public Sector for the last two years.

Each business needs to assess the Risk and implications of these new rules and make the necessary changes to procedures before early April 2020.

Who will be affected in the Private Sector?

Medium and Large Companies will be the initial target of the IR35 rules and they will follow the rules that now apply in the Public Sector.

Small businesses do not have a definition for IR35 but the definition will probably follow the criteria in Companies Act 2006.

How will IR35 affect your Business?

Changes will affect businesses who engage Personal Service Companies (PSCs) to provide workers. This will include intermediaries including Private Limited Companies, Limited Liability Partnerships and Partnerships. The new rules require the private sector organisation to assess the intermediary to see if the IR35 rules apply to the service contracts they enter into with a PSC.

Where IR35 applies the employer must apply PAYE and NIC deductions to the payment for the worker’s services.

This means that the worker is a deemed employee for tax purposes. This also means that you must also account for Employer’s National Insurance and possibly the Apprenticeship Levy.

These changes will almost certainly increase the operating costs of your business:

As a result of being the Fee payer
Because intermediaries will increase their charges to mitigate the increases in tax and National Insurance.

There is an outstanding consultation on employment status which has had no response from government yet.

We suspect that HMRC will expect businesses to use the CEST test to make the assessment.

CEST is short for Check Employment Status for Tax.

It’s a digital tool designed by HMRC to help public authorities decide if a worker falls inside or outside the scope of IR35

When to use the tool

Use the tool to check employment status when:

you are hiring a worker directly
you or the intermediary you work through accepts a new engagement with a client
you are a public authority or limited company hiring a worker and paying for the services of a worker who works through an intermediary
you are an agency or other third party supplying a worker who works for a public authority through an intermediary
there has been a change to an existing contract or service agreement
your worker disagrees with a determination you have provided them

Choose answers that best match the usual working practices of the engagement.

Before you start

You will need to know:

details of the contract
the worker’s responsibilities
who decides what work needs doing
who decides when, where and how the work is done
how the worker will be paid
if the engagement includes any corporate benefits or reimbursement for expenses

If you do not know who the worker is, the tool will not ask questions about the worker’s circumstances. You will still get a determination that HMRC will stand by.

Preparing for IR35 in the Private Sector

The new legislation comes into force in April 2020 which is only a few months away so you should consider the impact on your business and how it will affect your payroll and PAYE compliance procedures.

To start, establish:

The Personal Service Companies you use.
Where you use them I your business.
How you use them
Their importance to the functioning of the parts of your business.
The current contracts you have in place and their Terms of Service.

Once you have this information you should review the contracts to ensure that you comply with IR35.

It is critical that you know which parts of your business are affected by PSC’s as this will affect your business risk assessment.

You may need to renegotiate the contact with the PSC or have to employ a worker to take over the work.

These reforms could increase your operating costs considerably and have an affect on the way your business will operate.

The earlier you start this IR35 assessment the more time you will have to ameliorate the affects of IR35.

How can we help?

UK Business Advisors can work with you and your key suppliers to identify any risks in your business. We can help you assess the financial impact on your business and help you change your operational procedures where necessary to minimise the impact of the new legislation. This will provide a basis for compliance with future changes.

If you need help preparing for IR35 within your business, get in touch with Edward.tudor@hcbusinessadvisors.co.uk to discuss your requirements.

When you start a business you need to be aware of the risks you are taking.

Government statistics show that 97% of new start-up businesses fail within 3 years.

To prevent this from happening to your business you need to understand RISK.

By understanding Risk you can apply yourself to the areas of the business which are really important for the survival of the business.

Risk Management is a process of analysing what can go wrong with the business and what can be done to alleviate the problem in a cost-effective manner.

Entrepreneurs need to be familiar with the likely occurrence of a risk and the consequences of such risks if they happen.

Please see the diagram below:

Quadrant 1 risks have the least impact and the least consequences to the business, whereas Quadrant 4 risks have the most damaging consequences and the highest likelihood of occurring.

Therefore all risks need to be mitigated if the business is to be successful.

Let’s discuss the four Quadrants:

Quadrant 1: Minimal Risks

Risks in this quadrant need minimal attention because they will have the least impact on your business.

e.g. The light bulb in the stock room fails. You can replace the bulb at any time, but your shop can continue to operate.

The cost of the replacement bulb and fitting it is minimal and the business can continue even with some inconvenience.

Quadrant 2: Irritating Risks

The risks in this quadrant are ones you need to be prepared for.

e.g. You are giving a presentation and when you arrive at the venue your laptop with your presentation on will not boot up.

The Laptop can be repaired but there could be a delay in giving your presentation.

The solution is to have the presentation stored on a hard drive or memory stick that you take with you or in the cloud so that you can run it on another computer.

You could also print the slides as handouts and deliver your presentation from this printed copy.

The solutions here are having a “Plan B”

Have a set of procedures or a checklist to ensure that you have everything you need to complete your task.Ensure that you always have spare ink cartridges especially when you have an important document to print.

I order ink cartridges for my printer in threes and I re-order when I put the second cartridge in. This means I always have a spare cartridge.

Quadrant 3: Insurable Risks

There are risks that can and should be covered by insurance policies. Underwriting companies can provide specialist insurance for many risks.

One of my clients is a Tree Surgeon and therefore he has a policy which covers the damage if a tree should come down not as planned.

Usually the Risks in this Quadrant can be costly. You should make sure you hold all the policies you need to be legal:

General Liability Insurance
Property Insurance
Business Contents
Business Equipment away from the premises (Laptops, mobile phones)
Business Interruption Insurance
Public/Product Liability
Employers Liability (Compulsory if you employ staff)
Professional Indemnity Insurance

These are the usual policies required for a UK business. However if you are in a specialist trade then contact your Professional or Trade body to ensure you have all of the insurances you need.

Quadrant 4: Damaging Risks

These are the Risks which could close your business.

Many of these Risks look non-threatening. If these unmitigated risks are allowed to accumulate then even a FTSE 100 company could be brought down.

The consequences of these risks are especially dangerous to a new start-up or a small business.

Examples of Damaging Risks are:-.

Unidentified Market need
Unimplemented Innovation
Unforeseen Costs
Losing to the Competition
Company mismanagement
Not Managing Credit Control and Cashflow, which can lead to Bankruptcy.

Anything that you think will be detrimental to your business is Damaging RISK.

If you ignore these risks you could lose your business.

We know that in order to survive as a business and not be one of the 97%, we need to mitigate risks.

We know there are many risks that have to be dealt with and some may be difficult to understand.

However, we at Home Counties Business Advisors have the skills and experience to help you identify and overcome risks, especially in that all important 4^th Quadrant. For more advice on managing risks in your business, why not get in touch with Edward.tudor@hcbusinessadvisors.co.uk for an exploratory meeting or phone call.

HMRC taxing Contractors deemed as Employees (IR35)

IR35 in the Public Sector

How could this affect your business?

Introduction

Who will be affected in the Private Sector?

How will IR35 affect your Business?

When to use the tool

Before you start

Preparing for IR35 in the Private Sector

How can we help?

How to identify and manage risks in your business

Navigation

IR35 in the Public Sector

How could this affect your business?

Introduction

Who will be affected in the Private Sector?

How will IR35 affect your Business?

When to use the tool

Before you start

Preparing for IR35 in the Private Sector

How can we help?