IR35 Factors, IR35 Compliance, are you caught?

HMRC has launched a new consultation document (PDF) which looks at the issue of "false self employment" in the construction industry.

The situation of "false employment" may occur when construction workers consider themselves as "self employed" for tax and national insurance purposes, but whose working practices suggest that they are actually "employed" according to standard employment status guidelines.

According to the consultation paper, "the evidence suggests that there are a substantial number of workers in the construction industry working under employment terms who are presented as self-employed. Previous attempts to address this problem, for example, through compliance activity, have been unsuccessful."

Conditions for new legislation to apply

In essence, the HMRC proposes that all workers who are CIS (Construction Industry Scheme) registered should be subject to normal 'employed' PAYE rules, unless one or more of these conditions is met:

1. Provision of plant and equipment - that a person provides the plant and equipment required for the job they have been engaged to carry out. This will exclude the tools of the trade which it is normal and traditional in the industry for individuals to provide for themselves to do their job;

2. Provision of all materials - that a person provides all materials required to complete a job; or

3. Provision of other workers - that a person provides other workers to carry.

What about IR35?

According to section 5.21 of the proposal document, a worker who provides his services via his own limited company (personal service company) must first consider the new legislation first - and if this does not apply - determine whether IR35 applies to any work they have carried out:

"Where a worker provides their services through their own company which they control, sometimes termed a personal service company, the deeming provision for construction will take precedence over the intermediaries legislation (IR35). This means that the worker's personal service company must first consider the deeming legislation and, only if this does not apply, go on to consider the intermediaries legislation in respect of any payments."

Impact on Professional Contractors

Phil Richards has provided some detailed analysis on how these proposals could affect contract workers.

"We should be aware that the Government says that they are still committed to people who are genuinely in business on their own account and seek to work in a manner that is befitting of a self employed individual. Those who choose this lifestyle and do it properly should therefore have little to fear over this new legislation.

"It is certainly clear that real Professional Contractors and Freelancers and those clients who truly want to engage them will have to change their working arrangements, and in my opinion that is no change to how we all need to be working within the existing regulations and case law with IR35."

You can read the Government consultation paper (PDF) - here.

We will provide further analysis of the proposals in due course.