IR35: Common Misconceptions Demystified
In April 2020, the responsibility for compliance with ‘IR35’ (the colloquial name for the off-payroll tax rules) is shifting from consultants to end users.
For entities in the media sector, this means those engaging consultants through intermediaries, such as limited companies (sometimes referred to as ‘personal service companies’), will be responsible for:
- Assessing whether IR35 applies; and
- If so, operating PAYE on payments made to that consultant.
It has been commonplace to engage consultants through personal service companies, especially in the media sector where many on-screen and on-air talent, as well as production staff, are commonly engaged in this way.
When assessing status for tax, to date, media organisations have followed guidance such as the Film, Television and Production Industry Guidance Notes (issued in 2012) or the Radio Industry Guidelines (issued in 2008). In the recent case of Kickabout Productions Limited –v- The Commissioners For Her Majesty's Revenue & Customs [2019] UKFTT 415 (TC), the Tribunal held in its Decision, referring to the Radio Industry Guidelines, that the " document was not justiciable" and accordingly they "did not take it into account". The media sector's ability to rely on such documents is seemingly no more. We await further news from HMRC on this.
To help media organisations prepare for the forthcoming IR35 changes we deal with three common misconceptions.
“It doesn’t impact me”
The forthcoming changes apply to everyone engaging consultants in the UK, regardless of whether the media organisations themselves are based in the UK.
There is an exemption for small organisations. This applies, for incorporated entities, where two of the following three criteria are met:
- less than 50 employees;
- balance sheet total of less than £5.1m; and/or
- turnover of less than £10.2m.
For unincorporated entities, turnover alone is anticipated to be determinative.
“This is just a tax issue”
Unfortunately not. The forthcoming changes pose significant employment law risks also.
Take for example a situation where a media organisation assess a consultant as employed where nothing has changed and that organisation has engaged that consultant on a self-employed basis for, say, the last 5 years. We have seen instances of those consultants then bringing backdated claims for employment benefits, such as holiday pay.
It is critical that employment law risks are managed as part of the forthcoming changes.
“I can use CEST”
CEST is HMRC’s online employment status checker. It is an online questionnaire. CEST has been widely criticised for giving an ‘employed’ result in the vast majority is situations (despite tax tribunal rulings on identical fact patterns to the contrary).
HMRC agree to stand behind a CEST result, provided of course that they agree with how you have answered the questionnaire. Further, in a recent case HMRC sought to resile from a CEST result. So, whilst you can use CEST, approach with caution.
More Information
Media organisations should read the National Audit Office report 'Investigation into the BBC’s engagement with personal service companies'. This report details the BBC's experience of dealing with this IR35 rule change; the change already being effective for public sector organisations. It contains lots of helpful guidance.
For more information on IR35 and how to prepare, please get in touch. Preparing for the forthcoming rule change can be manageable; ask about our complete IR35 Audit service.