23 March 2017
We have been asked several times in the past few weeks about forthcoming changes, from 6 April 2017, to the IR35 legislation and how this impacts on academies.
First some background for anyone who is not clear on what this relates to. IR35 is aimed at ensuring individuals and the companies they are working for are being taxed correctly. It applies where an individual works through an ‘intermediary’ such as their own limited company or similar.
There is an obligation to check the employment status of any contractor that is invoicing, rather than being paid a salary through the payroll. There are a complex set of rules and criteria to help determine whether any particular scenario is caught by the rules; but it usually causes a problem when someone is providing services through their own company to just one entity. This is because it could easily be argued that the arrangements have been set up in such a way, off the payroll, to gain a tax advantage. For example both the “employee” and the “employer” save on National Insurance Contributions as invoices are channelled through personal service company.
We have on rare occasions seen a problem crop up with our academy clients, although it is fairly unusual for it to be an issue. The legislation has been in force for a good number of years but the change from 6 April this year moves the responsibility of determining a contractor’s IR35 status from the contractor, to the end-client. It will therefore be more important than ever for companies engaging with contractors to ensure IR35 is not a problem.
If you believe you may have an issue it’s worth noting that it is the payment that triggers the new rules: ie. if the services are provided before 6 April 2017 but payment is made on or after that date, the payment should be considered under the new rules before it is made. This means that contracts entered into before 6 April 2017 are affected.
If you require any help understanding the requirements of the new IR35 rules, or want to discuss how they might affect you, please contact me or your local academy expert. To read more of our academy school blogs, click here.
