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Whether the UK has the hardest or softest possible exit from the EU, some things will not change. The UK has always had its own tax system and will continue to do so. What is changing however is how the UK assesses whether a worker is an employee or a contractor and more importantly how they pursue any underpayment of tax, NICs (National Insurance Contributions), plus penalties, where a worker has been wrongly categorised.
Many Irish companies have operations in the UK, many more have third parties providing them with services (sales, distribution, product development, consultancy). This is why it is becoming increasingly important that you are aware of changes coming down the track since, soon, it will be very easy to unwittingly run up a bill with HMRC in the tens of thousands of pounds, even for the smallest of companies.
IR35 is the mechanism which determines whether a worker is a contractor or, for tax purposes, an employee making them subject to PAYE and NIC. HMRC has long felt that there are billions in uncollected tax and NICs through the incorrect classification of workers. In 2017 the responsibilities within the UK Public Sector changed regarding who should determine if the worker was inside IR35 (an employee) or outside (self-employed). The legal responsibility, and therefore recourse, moved to the End Client and in a short period of time they determined that thousands of previously self-employed or Ltd Company workers were indeed inside IR35. In April 2020 the same rules are being applied to the Private Sector with the same results expected.
With many changes being brought in through the Private Sector IR35 reform in April 2020, one key area that could be overlooked is how this applies to contractors with overseas end-clients. Any Irish company operating a UK contractor workforce or 3rd party provider (including via recruitment agencies) will be on the hook for the determination with penalties for getting it wrong. For instance, two IT developers could very quickly leave the employer facing a £100k bill from HMRC and larger organisations could see potential liabilities running into seven figures.
The financial liability will no longer sit with the worker but with the supply chain and end client who will all be jointly liable. Make no mistake, if the recruitment company or any other third-party providers will not, or cannot, pay HMRC will chase you and your operating entity in the UK.
If you have contract personnel operating in the UK, it is your responsibility to ensure those workers are properly classified as ‘inside’ or ‘outside’ IR35 with the correct tax rules applied. Hiring contractors through a recruitment agency does not absolve you of your responsibilities or your liabilities. If there is any doubt about whether contractors are considered employees for tax, then the safest option is to have them employed through a reputable umbrella company. This will ensure that PAYE and NIC is being paid and your liabilities are NIL.
If you have contractors in GB or Northern Ireland and you are not 100% sure they are tax compliant by HMRC’s definition then your company has a contingent tax liability. It is vital you ensure a compliant supply chain and understand the relevant UK personal tax legislation – especially IR35 and the upcoming 2020 private sector rollout.
If you have any questions about your potential UK exposure to your contingent workforce, feel free to contact me at [email protected]