IR35: private sector

• the greater the level of control placed upon the PSC, the more likely that IR35 applies
• any contractor whose working practices and engagement is considered, for tax purposes, as employment with the end client
• contractors carrying out the engagement who are not allowed to operate using their own business

The legislation applies only to medium or large businesses. There’s an exemption for clients who are small businesses which means meeting two or more of the following criteria (if not part of a larger group):

• annual turnover is no more than £10.2 million
• balance sheet total is no more than £5.1 million
• no more than 50 employees.

• those operating under a limited company, who are carrying out an engagement not deemed as employment by the end client
• any engagement that is aligned to the running of a business, for example, buying a service

If the PSC can supply a different person to do the work, it is less likely that IR35 applies. If the worker can be substituted for another, then that element of personal service would not exist.

• ALWAYS remain compliant to tax legislation and demonstrate best practices
• demonstrate ethical and fair payment practices where similar roles attract the same employment taxes
• avoid increasing costs for staff based on “uplifting” day rates to compensate for increased tax payable by the contractor

When referring to contracting, a limited company normally consists of a sole shareholder and director through which services are provided. Although IR35 applies to services provided through any intermediary that is not an agency, the most common model is via a limited company (a PSC). Tax is the responsibility of the PSC that employs the contractor.

The end user is the organisation benefitting from the services provided by the PSC.

The organisation paying the PSC for the services will be responsible for paying the associated fees. This may be the same organisation as the end user or another party — such as an employment business.

Mutuality of obligation is a term you will often come across when going through the IR35 compliance process. Mutuality of Obligation, put simply, is the employer’s obligation to provide work, and the employee’s obligation to accept that work.

This is a necessary feature of the relationship between an employer and an employee. Even where a worker is obliged to provide their own skill and be paid, IR35 doesn’t necessarily apply — an element of control must be present in the relationship.

As an employer it is important to consider the following questions:

• Is the individual obliged to provide their own skill and expertise or can the PSC engage a substitute?
• Is the end user obliged to pay for work carried out or does the PSC take some financial risk?
• Does the worker provide the materials and equipment or premises to discharge the work and are they responsible for fixing any unsatisfactory work in their own time at their own cost? 
• Does the worker only work for the client and/ or are they responsible for the success or failure of their business, which can make a loss or profit.