What is IR35?
IR35 is an anti-tax avoidance regime which is intended to tackle (in HMRC’s view) the long standing issue of individual contractors providing their services or labour via an intermediary – which is usually a personal service company (referred to as a PSC). We’ll talk about PSCs here, but there are other types of intermediaries that are caught.
HMRC’s view is that this arrangement is often considered to be disguised employment and therefore a tax-avoidance arrangement.
So IR35 is essentially a test of employment status – and if, once you apply the test, the contractor should be an employee, they should then be taxed as an employee.
Related FAQs
Employers and employees can decide the split of the hours of work and the hours of furlough. There is no maximum or minimum requirements. You can change the arrangement, by agreement, from time to time.
When claiming for employees who are flexibly furloughed, you should not claim until you are sure of the exact hours they will work during the claim period.
It could be possible depending on your contract. If there is no force majeure clause in a contract, it may be possible that the contract may have been “frustrated” by emergency legislation. In legal terms, a contract can be frustrated where an event occurs after it is entered into which was not contemplated by any party at the outset, is not due to the fault of any party, and which makes the performance of the contract impossible.
If this is the case, the contract could be “discharged”, meaning that the parties’ obligations under the contract are no longer binding.
It is possible that a contract could be frustrated within this particular legal doctrine by a change in the law that makes performance of a contract illegal. However, if it simply becomes more difficult, or more expensive, then the legal tests for frustration might not be satisfied. There are also limits to the application of the rule if the frustrating event was already known about at the time the contracted was entered into.
Again, careful legal advice will be required at an early stage. The rules about force majeure or frustration might help businesses that find themselves unable to perform a contract because of the coronavirus outbreak.
Any new contracts that are concluded should expressly deal with the possibility that performance might become more difficult, more costly, or impossible to perform.
The Government expects the use of bespoke contractual documents to implement temporary arrangements relating to your PFI contracts.
With time and resource precious commodities, focus should be given to documenting:
- The key changes to your PFI requirements
- The temporary nature of the measures
- The requirement for best efforts on behalf of the PFI Contractor
- The importance of continued health and safety measures at all times
You will need to check the terms of the contract you have with the debtor to make sure you are still entitled to be paid (including checking any force majeure clause).
It is also important to remember that the current exceptional circumstances might also affect your contractual rights in other ways too – please see our commercial & contracts site for more information.
Depending on the type of debt you are owed, there might be some additional restrictions in place that you will need to consider. For example there are certain restrictions on landlords being able to forfeit leases, evict tenants or send High Court Enforcement Officers to collect outstanding rent.
Assuming there are no sector-specific restrictions in place then you should be able to start county or high court proceedings to recover the debt.
As an alternative to starting court proceedings, if the debt is undisputed a creditor can usually opt to issue winding up proceedings against a debtor instead. However, the recently introduced Corporate Insolvency and Governance Act introduces a temporary suspension on the ability of creditors to present winding up petitions to recover money unless the reason why the debtor cannot pay is not related to covid-19. For more information click here.
Often taking firm action is the right thing to do, particularly given that it is a sad reality that it is the creditor who shouts the loudest that will often get paid first. However, one important consideration is the commercial reality that many businesses (and indeed individuals) now find themselves in.
Whether taking legal action is likely to result in payment is always a question any creditor should ask themselves. Some creditors might also want to try to support their customers during these difficult times and/or have concerns about their long term reputation if they pursue the debt too aggressively. However, even if that is the case it is still possible to engage constructively and positively with those who owe you money to try to reach the best possible outcome. This could include:
- Having clear and consistent credit control processes in place
- Obtaining statements of means to help understand what a debtor can afford to pay
- Agreeing realistic payment plans
- Negotiating formal payment holidays
- Putting in place voluntary security to secure the debt
- Identifying those debtors who can’t pay as opposed to won’t pay and targeting resources accordingly
- Looking at what other options might be available, including recovering under parent company guarantees
If you sponsor migrants under Tier 2 or Tier 5, you will not be required to report a sponsored employee’s absence if it is linked to coronavirus and you have authorised this absence e.g. they are self-isolating and you have received an online isolation note.
The Home Office has confirmed that sponsors do not need to withdraw sponsorship for affected employees who have been absent from work for more than 4 weeks if they consider these are exceptional circumstances, which would include absences related to coronavirus. It does however remain extremely important to know where your sponsored workers are and to have up to date contact details.