With IR35 heading to the Private Sector in April 2021, anyone new to this legislation may feel overwhelmed. You will no doubt have already read lots of articles about this off-payroll working reform, packed with legal terms used to reference the legislation.
We’ve pulled together the key terms below, to help you better understand the IR35 legislation.
Recruitment Agency through which a Personal Services Company is engaged through to work for the End Client. Can be seen by IR35 as the Fee Payer.
The approach by an End Client to determine its contractors and assignments collectively instead of making individual decisions.
Check Employment Status for Tax – HMRC’s tool for IR35 assessment.
An assessment undertaken on a worker using HMRC’s CEST Tool.
The process of identifying an IR35 status and its response.
A Disguised Employee is a contracted worker who fills a position in a company and works under terms that would make them an employee but doesn’t pay the corresponding income tax and National Insurance contributions (NIC) that an employee would.
When IR35 applies, i.e. the contractors is In Scope, the earnings for the engagement of the intermediary will be in the form of Deemed Payment, also called the Deemed Employment Payment – as they are deemed to be the income of the contractor.
An employee is an individual who is employed under an employment contract who is expected to work regular hours, expects payment & benefits, and has tax and NIC deducted from their salary. The employee is subject to supervision, direction and control.
The End Client is the party the contractor is engaged to deliver a service to. For the Public Sector HMRC gave a defined list for the End Client, for the Private Sector the definition of the End Client is the engaging business.
Equipment – including heavy machinery, industrial vehicles or high-cost specialist equipment – but not including phones, tablets or laptops; vehicles – including purchase, fuel and all running costs (used for work tasks, not commuting. This also includes other expenses – including significant travel or accommodation costs (for work, not commuting) or paying for a business premises outside of the contractor’s home.
The Fee Payer is defined as the business, agency or third party that pays the Personal Services Company (PSC), often referred to as a Limited Company.
A Hiring Manager is an individual with budgetary approval to engage a contractor.
Level of insurance cover.
Inside IR35 means that HMRC deems a contractor as an employee and is therefore liable for income tax and National Insurance deductions at source. This is also referred to as In Scope.
Her Majesty’s Revenue & Customs, the UK tax service.
The name given to the HMRC legislation that seeks to identify Disguised Employment.
An assessment undertaken to assess the status of the contractor landscape prior to utilising HMRC’s CEST tool.
An intermediary will usually be the contractor’s own Personal Service Company. They could also be a partnership, a Managed Service Company, or an individual.
Limited Company contractor
A contractor, who is usually the Director, who operates on a contract basis through a private business.
A Line Manager is the individual with operational oversight of a contractor.
Mutuality of Obligation (MOO)
Mutuality of Obligation refers to whether a client is obliged to offer work (and pay the contractor) and if the contractor is obliged to take it. If this were the case it would be deemed to be a contract of service (employment).
National Insurance Contributions.
A person who has been appointed to a position by a company or an organisation but doesn’t have a contract or receive regular payments.
Outside IR35 means that a contractor is not classed as an employee and does not have the burden of income tax and National Insurance deductions. This is also referred to as Out of Scope.
Part and Parcel
Being Part and Parcel is the level at which the contractor is integrated and embedded within the organisation.
Personal Services is what differentiates a contractor from an employee. An employee is employed for them specifically, where as a contractor is engaged for their unique expertise, which can be replaced and should be devoid of ‘personal’.
Personal Services Company (PSC)
A Personal Services Company is defined as a Limited Company with one director who is the contractor.
Right of Substitution
Right of Substitution allows the PSC to send a replacement who meets the required criteria.
Status Determination Statement – An assessment provided by the End Client which declares the employment status of an assignment with the justification for reaching the deemed status determination.
An individual who runs their business as a self-employed person. They are not registered on Companies House and are not a Director.
An alternative worker who undertakes work in place of the principal contractor, but is paid by the principal contractor.
The assignment/project that a contractor is engaged on.
The understood and inferred behaviours and engagement the organisation has with its contractors.