IR35 Off Payroll working rules or intermediaries legislation, as they are also known, saw reforms introduced into the private business sector on the 6th of April 2021.
The reforms were controversially introduced to the public sector back in 2017 and following a 12-month deferral due to the Covid pandemic have now arrived in the private sector.
As accountants, we should be ideally placed to understand the implications of the IR35 reforms, so what do they mean for interim accountancy professionals?
What is IR35?
IR35, also known as the Intermediaries Legislation, is tax legislation aimed at tackling tax avoidance.
The legislation is designed to test whether interims who provide their services and expertise to a client via an intermediary, such as a limited company, would otherwise be deemed an employee of the client if the intermediary did not exist.
If deemed to be an employee without the existence of the intermediary, the earnings generated for the services become subject to income tax and National Insurance Contributions (NIC’s) and treated in the same way as employment income.
What are the IR35 private sector reforms?
Prior to the 6th of April 2021, it was the responsibility of the interim to determine whether their assignment was caught by the IR35 legislation. The interim was also responsible for paying the correct taxes dependent on their IR35 status.
The private sector reforms introduced the following key changes:
- The responsibility for IR35 determination shifted from the interim to the engager (the company utilising the interim).
- If caught by IR35, the responsibility for the payment of income tax and NICs shifted from the worker to the fee payer (the organisation paying the worker for their services). This could be the engager or an agency (if the interim is supplied in this manner).
How will the reforms affect interim accountants?
Interims that provide their services to clients via their own limited company, or personal service company as it is also known, either directly or via an agency are most likely to be impacted by the legislation changes.
The only exception is where the interim is providing services to a small business. The criteria for a small business are as follows:
- Turnover – not more than £10.2 million.
- Balance sheet total – not more than £5.1 million.
- Number of employees – no more than 50.
- Where the interim is engaged by a small business, the responsibility for determining the IR35 status, along with the payment of taxes will remain with the interim.
Following the introduction of the reforms, interim accountants will now need to understand their client’s perception of the assignment prior to commencement.
Clients looking to engage an interim accountant that provides their services via their own limited company will need to conduct a status determination to assess whether the assignment is caught by the IR35 legislation or not.
The assessment should be carried out prior to the commencement of the assignment and the decision clearly communicated to any potential interim. This should allow the interim accountant the opportunity to assess the suitability of the assignment in terms of potential earnings and deliverables.
What should interim accountants do now?
Interim accountants need to gain a clear understanding of their client’s view of any potential assignment.
Any client looking to engage an interim with their own limited company should produce a status determination statement (SDS) explaining and confirming their decision regarding the assignment. Interim accountants should ensure that they obtain a copy of the SDS to ensure a clear understanding prior to commencement.
The SDS will be supplied by the engager if the interim is providing their services directly or via the agency where they have sourced the interim for the assignment.
The statement should clearly state whether the assignment is inside or outside of the IR35 legislation which in turn will confirm whether deductions will be made from the gross payment to the interim or not.
About Public Practice Recruitment Ltd
Public Practice Recruitment Ltd recruits high-calibre accounting professionals at all levels for tax, accounts, and auditor jobs on both a permanent and interim basis for accountancy firms.
Call Public Practice Recruitment Ltd today on 03335 777 787 to discover how we can support you.
Specialising solely in accountancy recruitment, Public Practice Recruitment Ltd has new auditor jobs and accountancy jobs every day and has a superb track record of meeting and exceeding expectations for accountants looking for their next accounting role.
Call us for a confidential chat on 03335 777 787 or upload your CV here.