Uniac - July 2022

19 end client who takes on the decision-making for the PSCs it manages.8 Where the institution is requesting the third party to undertake specific roles, it will retain the decision-making responsibilities (and completion and issue of SDS), whilst the third party – such as an agency – will have the role of ‘fee payer’ for the PSCs engaged.9 This may particularly be relevant where an IT consultancy third party is engaged. • It is also worth noting that ‘small companies’ as defined by HMRC10 are exempt from IR35 legislation meaning that, where contractors are engaged, the decision-making and liability for payment of tax and national insurance lies with the PSC. Where a third party engaged is therefore classified as a small company, the initial end-client does not retain any IR35 assessment responsibility or any potential tax liability. This is particularly important where small companies are engaged to provide contractors for projects within the organisation. • It is crucial that the IR35 responsibilities are established and clearly defined. In the future, HMRC may focus some compliance assurance activity on contracts where IR35 exempt small consultancy companies are used to ascertain that these are not being used to avoid responsibility for their legal obligations. 8 https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm10014 • Agencies used by the end-client organisation to provide individual contractors for projects are defined as the fee payer in the relationship with the PSC the individual contractor is using. Because of this relationship, the agency will become liable for any uncollected tax due from the PSC if the end client’s IR35 assessment process has resulted in errors, irrespective of the level of care taken by the organisation. It is critical that, where agencies are used, the contractual arrangements are clear and that IR35 assessment responsibilities are clearly defined and understood. Uniac can provide an assessment of the current processes and controls in place to manage IR35 to provide assurance that these comply with current HMRC requirements. 9 https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm10010 10 https://www.gov.uk/annual-accounts/microentities-small-and-dormant-companies We can help Graeme Chambers Senior Assurance and Audit Consultant e: gchambers@uniac.co.uk www.uniac.co.uk Richard Young Director t: 07795 122 252 e: ryoung@uniac.co.uk www.uniac.co.uk

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