![Rec business 1460](https://www.rec.uk.com/579x342/5316/0319/7737/Rec_business_-_1460.jpg)
Template contracts
We've conducted a full review of our template contracts, to reflect upcoming changes to the off-payroll (IR35) rules, and to reduce the number of contracts members have to manage.
On 6 April 2021, the off-payroll rules were applied in the private sector. Since the 2021 Finance Bill government introduced some technical changes to the off-payroll rules for workers who provide services through intermediaries where the clients are public authorities or medium or large in the private sector. The changes ensure that the off-payoll rules operate as intended.
Download the supporting documents here
HMRC has updated its guidance on how to use the Check Employment Status for Tax (CEST) tool to reflect these changes.
HMRC has rewritten its CEST tool guidance following the changes to the off-payroll working rules which came into force in April 2021.
The CEST tool can be used to help hirers, agencies and workers decide on the employment status of an individual and, where appropriate, to decide whether the off-payroll rules apply to a contract.
The guidance notes that HMRC will stand by all status determinations given by the tool so long as the information provided was accurate.
Client Contracts | Temporary Worker Contracts | |||
Contract 3 | PAYE Agency Workers | Umbrella Workers | PSC Inside IR35 | PSC Outside IR35 |
Client who are not exempt from the off-payroll rules | ||||
Combined terms for the supply of PAYE workers, umbrella company workers and PSCs - covers inside and outside IR35 and non-opted out and opted out contractors |
Contract 4 (PAYE ONLY) |
(combined non-opted out and opted out) |
(Combined non-opted out and opted out) |
(opted out only) |
For the supply of PSCs only - outside IR35 opted out contractors |
(opted out only) |
|||
For the supply of PSCs only - cover outside IR35 and non-opted out contractors |
(non-opted out only) |
|||
Clients who are exempt from the off-payroll rules | ||||
Combined terms for the supply of PAYE workers, umbrella company workers and PSCs - covers outside IR35 and non-opted out and opted out contractors | Contract 4 |
(combined non-opted out and opted out) |
(opted out only) |
|
For the supply of PSCs only - outside IR35 and opted out |
(opted out only) |
(opted out only) |
||
For the supply of PSCs only - outside IR35 and non-opted out |
(non-opted out only) |
(non-opted out only) |
Client Contracts | Temporary Workers Contracts | |||
PAYE Agency Workers | Umbrella Workers | PSC Inside IR35 | PSC Outside IR35 | |
Contract 5 |
(Opted out of the Conduct Regulations) |
|||
Contract 7 |
(Not opted out of the Conduct Regulations) |
|||
Public Sector Only | ||||
Contract 5A |
(Opted out of the Conduct Regulations) |
|||
Contract 7A |
(Not opted out of the Conduct Regulations) |
|||
(Opted out of the Conduct Regulations) |
||||
Contract 11A |
(Not opted out of the Conduct Regulations for the Limited Company) |
If you missed our webinar series on IR35, you can now purchase a recorded seminar explaining the measures your business needs to take to comply with the new rules.
This seminar is delivered by Bernie Payne of Labolution. Bernie has worked in legal & compliance roles within the staffing industry for over 15 years and has supported agencies and end clients with their IR35 obligations for both the public and the private sector changes. Bernie has been working closely with the REC since she decided to become an independent consultant in early 2019.
Please note that the recording was made prior to 6 April and the information provided was accurate on the date of seminar delivery. To purchase the seminar recording, contact us on 0207 009 2100 or email.
The session explores in depth:
Missed our recent IR35 webinar with HMRC? You can now download the slides containing answers to the following:
HMRC updated their Employment Status Manual (in particular look at chapter 8000, 10000 and 11000). This is guidance only but it is useful to understand HMRC’s interpretation of the law.
There has been some public discussion about how a late change to the off-payroll rules (now in the Finance Act 2020) would affect the use of umbrella companies i.e. that the change might require agencies to deduct PAYE tax and national insurance even where there is an umbrella in the supply chain. REC spoke with HMRC on 14 October and HMRC have released this statement to reassure agencies and umbrellas that where the umbrella company deducts PAYE tax and national insurance, the agency does not have to consider the off-payroll rules.
If you wish to gain access to our
It's been almost four years since IR35 rules were introduced in the public sector, and almost a year since they extended to the private and voluntary sectors but the impact of the changes are still being felt. IR35 queries continue to come up on a weekly basis on the REC legal helpline and our members still reflect on some of the unintended consequences associated with the changes - the rise of umbrella companies, for example.
It has been almost 1 year since IR35 rules were extended to the private sector and the responsibility for assessing IR35 status moved from the personal service company to the client. Here, we’ll look back at the changes that have taken place, and outline what to look out for this year (2022).
What changed?
In 2017, public authorities became responsible for deciding if the off-payroll working rules applied for a worker providing services through their own intermediary. Then in April this year, that responsibility was extended to include medium and large sized end-user clients in the private sector. If a client is not exempt, it must provide a status determination statement to both the worker and the party it has a contract with. That statement must confirm whether the engagement is ‘inside IR35’ or ‘outside IR35’. If it is an ‘inside IR35’ engagement, the fee-payer (who has the contract with the Personal Service Company (PSC)) must deduct tax and national insurance before paying the PSC. They are held liable by HMRC to make sure the correct tax is collected.
Earlier this year, a number of technical changes were introduced, from bringing umbrella companies out of scope to strengthening anti-avoidance measures in the supply chain. Despite best intentions, we are not sure how effective some of these changes have been. Technical changes include:
REC in 2021
As well as continuing to be an active member of the IR35 forum, ensuring our members concerns are heard and addressed on a regular basis, we took the opportunity to send a written submission to the Finance Bill Sub-Committee which was looking into the implementation of the off-payroll rules in the private sector. In our submission, we highlighted a number of concerns, including challenges with HMRC’s CEST tool, which despite some minor improvements, remains incredibly unreliable.
HMRC’s view that mutuality of obligation should not form part of the questions in the CEST tool on the basis that the parties in all assignments have agreed to the contract, does not reflect the reality of the contracting environment. Further, because off-payroll working legislation is complex, it is inevitable that mistakes will be made. The potential inaccuracy of the CEST tool, combined with the subjective nature of the questions in most contexts, results in disagreements between hirers and contractors who must then resort to debating the nuances of what has been established in case law. The Department for Work and Pensions (DWP) owing HMRC nearly £87m for “historic errors” in assessing tax liability for DWP off-payroll workers over the period 2017-21 is a clear example of the flaws with the CEST tool. We have and will continue to advocate for an adequate CEST tool. In our submission, we also raised concerns about the status determination and the unfair predicament that agencies face, potential costs and difficulty recouping any overpayments. For example, the current rules make agencies liable for a status determination that they did not make and where there is an incorrect determination of an “inside IR35” status, that would also mean that additional costs have been wrongly applied to their charge rate - employer’s NICs at 13.8%, VAT which may or may not be recoverable, or the agency may find that its payroll wrongly reaches the £3 million threshold at which point the apprenticeship levy applies. Recovering overpayments from HMRC remains challenging because the legislation does not allow for an offset of tax where there has been an overpayment. Agencies have little or no influence on the tax status decision or employment status of the off-payroll worker but carry a disproportionate compliance burden and liability.
Whilst we will continue to ensure our members’ concerns are heard, the off-payroll rules are not going away, and although we have made the best of it, without fundamental understanding of the entire supply chain, unintended consequences are inevitable. For example, the introduction and extension of IR35 has resulted in the growth of non-compliant umbrella companies, using disguised remuneration schemes and other tax mitigation models such as joint employment models where umbrellas companies reduce their VAT bill.
Looking ahead to 2022
The government published a call for evidence, which ran until 22 February, and involved how the umbrella company market operates. The REC drafted an initial response which is on our website and we hope you will find it a useful guide in developing your own responses. Any feedback members wish to share would be very welcome – you can email us on policy@rec.uk.com to feed in. We will be hosting a member roundtable on the issue with BEIS in January – contact us if you would like to take part.
We have four main asks around the regulation of Umbrella Companies. The REC is not advocating for a ban of umbrella companies as this could well lead to the reinvention of umbrella companies or the creation of alternative entities, meaning HMRC and the REC would have to navigate the unknown and potentially non-compliant again. However, we are advocating for:
Another important piece of legislation to look out for in 2022 is the long-anticipated Employment Bill. In December 2019, an Employment Bill was announced in the Queen’s Speech, but it has yet to be published and was notably absent from the Queen’s Speech this year. The government has since indicated that the Bill will be forthcoming “when parliamentary time allows”. It is anticipated that the Bill will be published at some point in 2022. The REC will, of course, keep members up to date with any developments around IR35, umbrella company regulation, and any other upcoming legislation.
Some businesses are being tempted by the idea of making ‘blanket assessments’. They are deciding to put all their contractors into one category, either outside or inside IR35, and if inside IR35 this means that the contractors will be treated like employees for tax purposes. That’s regardless of the role the contractor is actually doing. Badging all contractors the same might seem like a quick fix, but in reality, it only stores up bigger problems for the future.
Making blanket assessments is a big mistake for client businesses and we think it’s bad for contractors too. Here’s are five reasons why.
REC's business partners have been selected for their ability to provide relevant, quality services to our members. Here is a list of specialists suppliers who can support with your IR35 needs.
If you're not an REC member, talk to us today about joining our network and start accessing all the help available to prepare for April 2021.