Step 1: Decide if you are classed as a ‘small company’. If you are classed as a small company then you are exempt from the off-payroll working rules and IR35 still applies (i.e. the PSC carries the risk).
A company will be classed as small if it has at least TWO of the following:
- Turnover of £10.2 million or less
- £5.1 million on its balance sheet
- 50 employees or less (measured by average no in a tax year)
Please note, if you are a UK subsidiary of a larger group with a foreign parent this could affect your small company classification.
Step 2: Identify which of your workers are currently providing services through their own intermediaries (direct or through an agency).
Step 3: Review the status of all existing contractors – you might want to consider using CEST – HMRC’s service to Check Employment Status for Tax (https://www.gov.uk/guidance/check-employment-status-for-tax) or engaging with professional advisers.
Step 4: Analyze the results:
- They are already PAYE – e.g. umbrella company worker – no action needed
- They are working through a PSC outside IR35 – no change is needed but keep under regular review
- They are working through a PSC but inside IR35:
- Further analysis is required as you will need to change their pay structure
- You should assess if they are business critical?
- You should be aware your costs will increase due to NICs
- Their status is grey or undetermined – can changes be made so they are outside scope?
Step 5: Process and education:
- Set up a process for status determination challenges (particularly for existing workers)
- Work with supply chain and internal HR and Recruitment teams to agree the process for new hires and how roles are reviewed for a status determination
- Think how processes for new hires will look post April (core roles determined in advance)
- Make contractual changes
- Consider training for hiring managers
If you need help preparing for IR35 next April or have any questions please get in touch with us today.