APHC investigate IR35 – What it means for tradespeople

25/06/2021

06/25/2021

Recently it was ruled that Uber drivers are in fact workers under IR35, and not independent contractors – so what are the implications of this for plumbing and heating contractors? John Thompson, CEO of the Association of Plumbing & Heating Contractors (APHC) investigates.

IR35 has been around since the year 2000, although it has been known by other names, including the ‘intermediaries legislation’ and ‘off-payroll working’.

So what is it?

IR35 is legislation that combats ‘disguised employees’ – this means individuals who contract with a client indirectly through what’s called an ‘intermediary’ (typically a company) in order to gain income tax and NI advantages. IR35 ignores the existence of the intermediary, and looks at the nature of the working relationship between the contractor and their client to see if it is indicative of employment. If it is, the contractor is taxed similarly to an employee who works directly for the client.

What are the new rules?

Since 6 April 2021, the onus is on the client to know whether their contractors are inside IR35 or outside IR35. Falling inside IR35 will prevent the contractor from using traditional tax-planning methods (e.g. a small salary and high dividends) to minimise taxes. Instead, the client will have to pay almost the entire fee as salary to the contractor, meaning income tax and NI will have to be paid.

How do you decide whether someone is self-employed or not?

There are several factors here. For example, how a person is paid and if they can be dismissed will influence whether they should be classed as employed or self-employed. Payment on an hourly, weekly or monthly basis would generally be associated with employment, whereas a self-employed individual will more likely negotiate a rate for a job, invoice for the work done and be responsible for their own expenses.

The Uber case is one of a number recently where those who were ‘self-employed’ have successfully challenged their employment status. As this issue becomes more a focus for the Government and HMRC, all businesses should review their contracts when it comes to engaging individuals on a self-employed basis and make sure that they are well-drafted.

IR35 may seem like just another burden on top of the difficulties many self-employed workers have faced this year, but it’s important to prioritise it. Non-compliance could result in not just having to spend significant amounts of time responding to an enquiry from HMRC, but it could also leave you with a hefty bill for unpaid taxes.