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The new IR35 rule explained : Here are the top five mistakes businesses need to avoid inorder to stay on the right side of HMRC

As of April 6, 2021, private sector employers, with the exception of small businesses as defined by The Companies Act 2006, have been responsible for determining whether the contractors they use are de facto employees and, as a result, whether or not PAYE and NIC deductions should be made from their payments.

However, as with any new set of tax rules, there are pitfalls for the unwary, and engagers who make mistakes could end up with large tax debts.
When it comes to IR35, here are the top five pitfalls to avoid:

It’s important to remember that if you’re the end-user of a contractor’s labor and the contractor engages with you through a personal services intermediary, you’re the one who has to make the status determination’ and decide whether or not PAYE and NIC should be deducted from the payments for those services.
This is true even if you hire someone from a third-party agency.

As a result, engagers should keep track of all invoices they receive in order to identify the contractors they work with, whether directly or through an agency, and test each contract involving labor services.

It’s much easier to make sure the right methods for off-payroll labor are followed and that all parties (including your regular contractors) are aware of the rules if you have a clearly documented policy on how your company will deal with contractors.

Even if you make errors on individual contracts, being able to explain your company’s policy to HMRC will help you show that you meant to use reasonable care in your assessments and processes.

Keep in mind that your policy should be consistent with your tax risk mitigation policies (for example your policies to safeguard against committing a Corporate Criminal Office through facilitating tax fraud).


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