Client companies not affected by the proposed changes The proposed reforms will not apply to small client companies having two or more of the following criteria: an annual turnover not exceeding £10.2m; a balance sheet total not exceeding £5.1m; and an average over a year of not more than 50 employees. For small client companies falling within the exemption then the existing IR35 continue to apply. Note: for public sector organisations these changes were introduced back in April 2017. What is IR35? IR35 is a regime introduced by HMRC back in 2000 in order to counter tax avoidance whereby individuals were able to avoid paying income tax and national insurance contributions (“NIC’s”) by supplying their services through a PSC, the result of which meant the individual paid themselves by way of dividends which are not subject to NIC’s. What does the current IR35 legislation require? Currently, the intermediary (normally the PSC) has the responsibility for determining whether or not their contractor/worker would have been a “deemed” employee of the client company with whom the PSC is contracting. Whether an individual is/was a deemed employee requires an analysis of the actual working relationship between the individual/worker and the client company. This involves an understanding of the existing case law on employee status. In order to help organisations/individuals assess employment status, in March 2017 HMRC set up an on-line tool known as “CEST” which can, in most cases, determine whether IR35 is engaged or not. Clearly, the accuracy of the system is dependent on the quality of the data inputted into it. For client companies which will be exempt from the proposed IR35 changes, the risk still lies with the PSC with regards to making sure individuals/workers providing services through their PSC’s are paying the correct tax and NIC’s. That said, it would still be unwise for client companies not to have robust tax and NIC indemnities in any contract. Implications for client companies which will not be exempt The obligation for providing a “status determination statement” as to whether or not IR35 applies will lie with the client company. This assessment must be carried out at the time of entering into any contract or, if later, before the services are performed. If the client company is challenged about its decision, it must answer any questions in writing within 31 days as to why it reached its decision. If the client company doesn’t comply, or fails to take reasonable care in coming to its conclusion, then it has the responsibility to operate PAYE  - i.e.. the onus is not on the individual or the PSC.  So, for those client companies who routinely engage individuals (whether or not through PSC’s) will need to undertake a full audit of their existing arrangements. In some cases consideration will need to be given to: changing contractual arrangements with PSC’s; outsourcing certain types of roles rather than contract for labour supply; and employing contractors rather than trying to continue with self-employed arrangements. Ongoing mitigation of risk for exempt client companies Even if a client company won’t be caught by the proposed legislative changes, then it’s still important to enter into written contracts with PSC’s. In any contract the following should be covered if possible: avoiding notice periods helps to counter against arguments of there being mutuality of obligation; include a right of widely cast right of substitution - even better if the right can be exercised in practice by the PSC/individual; avoid an obligation to provide and accept work; avoid control – ideally the individual can choose where and when they want to work and how often; make contracts task/project orientated rather than for a period of time; the individual should provide their own equipment; and try not to integrate the individual with the rest of the workforce.