General overview of IR35
The off payroll rules known as IR35 used to clamp down on tax and NI avoidance from people working through limited companies, has undertaken some important changes over the last few years. One sector that must adapt accordingly is the construction sector. This article shall serve an IR35 for dummies approach for construction, including everything you will need to know.
IR35 for News 6th April 2021
- From this date for services supplied to medium or large sized companies via intermediaries, the company is responsible for deciding if there is an employment relationship under IR35. Once you make a decision, you should provide a status of determination statement (SDS) to show the decision and why it was made.
- if the SDS states that a hired person is an employee, CIS payments will no longer be deducted. However, the fee payer will take NICs / Income tax with Pay as you Earn (PAYE) before payments to any relevant limited company.
If working with an agency as part of a chain, all agencies should be provided with the SDS.
Anyone within the construction industry receive some deductions from the Construction Industry Scheme (CIS). Deductions are balanced against income tax and NI, but can also be taken from PAYE or from any corporation tax.
The placement of a worker within a sector does not diminish the responsibility to check one’s position in terms of IR35 in construction. whether or not a worker is wholly or partially involved in the construction sector, the off payroll rules will still apply if they work within construction through an intermediaries and limited companies.
For any sector an intermediary may include:
- Limited companies in which you own more than 5% shares.
- Partnerships of which you are a member that gets more than 60% of its income from personal service contracts.
- An individual you have an employment relationship with (less common).
Income tax and NICs
When considering IR35 for construction, one should note that income tax/NICs deductions can’t be offset against tax paid through intermediaries. Thus the amount of NICs and income tax paid might increase.
Relief granted on tax, as workers part from limited companies will be given. (Unless taxes/NICs are paid on the same income received from a limited company).
CIS may not be needed if IR35 is present. IR35 is decided case by case, so you should consider whether it should apply or if CIS rules are relevant. For example, you should consider:
- People supplying services in the public sector, should these rues apply.
- People supplying services to a small non public sector company, should refer to limited companies to determine if the rules apply.
Payments such as Statutory maternity, Paternity, Adoption, Parental, Bereavement and shared parental pay can only be qualified by an intermediary where salaries are paid to yourself from a limited company.
For any disputes that arise from an STS, a disagreement process should be implemented by clients to help resolve these issues. Other payments should be withheld until the issues are resolved.
On the 1st March 2021 the VAT reverse charge for construction services will be introduced. If a worker falls within IR35 rules, VAT reverse charges won’t be applied. The VAT reverse charge works so that the customer accounts for their own VAT, which is paid directly to HRMC.
For further help making calculations regarding IR35, you can use the HMRC IR35 calculator, also known as the CEST tool.
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