With IR35 reforms imminent (April 6th 2021), many contractors and self-employed workers will likely be re-evaluating their working options to ensure they act compliantly.
With a range of contracting methods available, such as PSC, Umbrella, sole-trader, and CIS, it can be difficult to figure out when the rules apply and if they apply to you.
Here, we explain how IR35 will affect you as a self-employed member of the Construction Industry Scheme (CIS) vs a Personal Services Company (PSC). Click here to download the comprehensive guide.
Does IR35 apply to me?
IR35 was introduced in the year 2000 to prevent disguised employment through intermediary entities such as PSCs, which allowed workers to inappropriately avoid paying taxes as employees.
This means IR35 does not impact anyone trading as a self-employed CIS worker as there is no single-person intermediary entity between the worker and the hirer (such as a PSC).
It does, however, impact PSC workers if it can be proven that they are working more like an employee than someone self-employed. You can read more about what places PSC contractors ‘inside’ IR35 here.
Do I need a Status Determination test?
Even though IR35 won’t apply to CIS workers, their employment status must still be assessed using most of the same employment status tests as those used to determine the IR35 status of PSCs.
However, as a sole trader, you will not be liable for the risks surrounding your employment status assessment. If your status is assessed incorrectly, any liability will continue to lie with your recruitment business (the “first intermediary” according to the Onshore Intermediaries Legislation 2014).
Comparatively, as a PSC contractor, you will be responsible for determining your employment status up until 6th April 2021 (when the IR35 rules change). From 6th April onwards, however, the responsibility for determining a PSCs employment status correctly, and successfully passing this throughout the supply chain, will fall on the recruitment agency in the first instance, followed by the end hirer. You can find out more about IR35 liability here.
How do hirers view CIS vs PSC?
Previously, some sectors have viewed PSC contractors more favourably than sole traders or CIS workers, considering it a more professional approach.
However, since the announcement of the impending IR35 reforms, many hirers are beginning to look differently at CIS workers, as it involves less risk and financial liability for them than engaging with PSCs.
When working with members of the Construction Industry Scheme, the recruitment agency is the one at risk as “intermediary one” under the Onshore Intermediaries Legislation of 2014. However, most construction recruitment agencies have been professionally managing this liability since the introduction of the legislation seven years ago, and therefore won’t be concerned about hiring CIS workers in this way.
This means, if the recruitment business is familiar with managing the risk of status determination assessments for CIS workers and sole traders, then construction workers can continue to work as self-employed, so long as they can genuinely pass a self-employment determination assessment.
The tide is turning with regards to the way CIS contractors are viewed by hirers.
If end hirers are not prepared to engage with PSCs as a result of the financial liability associated with the upcoming IR35 reforms, they can continue to engage with sole traders/CIS contractors without facing any additional responsibility. This is appealing for hirers who are concerned about the accuracy of status determination statements (SDS) as well as the quantity of SDSs they will need to generate in time for IR35.
But remember, if you choose to work via the Construction Industry Scheme, it is important to use professional agencies who have genuine experience trading in this specialist sector to guarantee they can manage the risk of CIS self-employed status assessments and evidence a morally compliant culture.