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IR35 for the Modular Industry

posted: 19th Mar 2020

The modular industry has a month to prepare for IR35, the new off-payroll legislation, and failure to prepare could impact business performance and talent pools according to MPBA Associate Member E3 Recruitment (E3R).

So what is IR35? It’s a tax law, properly known as the Intermediaries Legislation and came into force in April 2000 as part of the Finance Act published by the then Inland Revenue, now HMRC. IR35 was introduced to tackle the problem of ‘disguised employment’.

An employee is someone who works under an employment contract. A person may be an employee in employment law but have a different status for tax purposes. Employers must work out each worker?s status in both employment law and tax law.

A disguised employer is where organisations engage workers on a self-employed basis and usually through an intermediary, rather than on an employment contract, so they become disguised employees.

This income tax and national insurance avoidance clamp down follows the Supervision, Direction and Control (SDC) rule which came into effect on 6 April 2016 as a way of limiting the number of umbrella contractors being able to claim travel and subsistence expenses.

IR35 comes into forces on 6th April 2020 when the responsibility of categorising contractors’ and contingent workers’ tax status will move from the individual onto the hiring business. They now need to determine the IR35 position of any current limited company contractor, assessing their requirement to pay income tax and national insurance.

IR35 involves applying three principles to determine employment status. These are known as the principal ‘tests of employment’:

  • Control: what degree of control does the client have over what, how, when and where the worker completes the work
  • Substitution: is personal service by the worker required, or can the worker send a substitute in their place?
  • Mutuality of obligation: mutuality of obligation is a concept where the employer is obliged to offer work, and the worker is obligated to accept it.

Other factors taken into account to determine whether you are caught by IR35 include the contract type, whether you are taking a financial risk, if you are ‘part and parcel’ of the engager’s organisation, being in business on your own account and provision of equipment.

James Soden, Director at E3R which specialise in modular building recruitment commented: “The modular building industry is reliant on contractors as they offer the skills and experience required to work on complex projects both compliantly and quickly, removing stages of the recruitment process. IR35 will impact how these businesses work with contractors long-term, which is why it is important that businesses are equipped with all the information needed so they can act on IR35 accordingly.”

An IR35 assessment process either managed internally or with external specialist support is required to ensure the status decision is correct. Blanket bans on the use of limited company contractors or blanket IR35 assessments should be avoided, although grouping roles together for the purposes of assessing status is deemed acceptable.

It is worth noting there is an IR35 exemption for ?small businesses? as defined by the Companies Act 2006, which means meeting two or more of the following criteria: Annual turnover is no more than £10.2 million; Balance sheet total is no more than £5.1 million; or those with fewer than 50 employees.

E3R can offer advice around contractors, permanent employees and temporary labour force. If you require further information on IR35 please contact Laura Rogers at E3 Recruitment laura.rogers@e3recruitment.com or call 01484 645 269.