What is IR35?
The IR35 tax rules (previously known as the “employment intermediaries” rules and more lately called “off-payroll working” by HMRC) apply when a worker supplies his/her personal services through a Ltd company or partnership to an end client.
In practical terms for example: a stylists works in your salon, barbershop, or spa but you pay them via their Ltd company (one that they have set up), rather than pay them directly (as you would do an employee, or self employed person).
Another example is where you have a ‘rent a chair’ arrangement with someone, but the contract is between your salon and a Ltd company (one that they have set up).
These Ltd companies that they have set up are also known as personal service companies “PSC”.
By using such a PSC, the stylist opens up the tax advantages of a Ltd company and HMRC doesn’t like this because it knows it means less tax and national insurance can be collected from the person. The rules are therefore intended to ensure that individuals cannot avoid PAYE by routing their income via a PSC.
How does HMRC use IR35?
HMRC applies the IR35 rules in cases where they consider a person is “hiding” behind a PSC but is for all intents and purposes really an employee, or self employed individual. Once HMRC get a whiff of this set up, they simply compare the person’s set up in practice against the HMRC ’employment status test for PAYE’ (called the CEST test) and if the person fails it, they consider them an employee.
The consequence is that HMRC would then go after the person behind the PSC for income tax and NIC owed.
At the moment, the burden is on the person behind the PSC (this being the person HMRC would go after) but things are about to change…
From April 2020
From April 2020, the onus to check the employment status of any possible IR35 situation and possibly who will need to back pay the PAYE moves to the ‘end Client’ – i.e. the salon owner; but for now, this only applies to medium and large sized businesses only. For small businesses, the onus remains with the PSC, at least for now anyway.
‘Small’ is defined as: 50 or less employees, turnover is less than £10.2million and their balance sheet shows £5.1million or less.
So pretty much all independent salons are exempt at the moment.
Should you be worried then?
For the vast majority of Salon owners, IR35 should not be a worry for now, for at least 1 of 2 reasons:
- it only applies if the salon has a contract in place (either in writing or in practice) with a PSC (for example a ‘rent a chair’ arrangement with an individual using a LTD company themselves;
- it doesn’t apply to small businesses (ie. you’re exempt as you have less than 50 employees, your turnover is less than £10.2million and your balance sheet assets are less than £5.1million).
But watch out for self employed individuals who don’t have a PSC
Although similar (but nothing to do with IR35) the more likely risk that salons face is by treating employees as self employed individuals; but you can check this by running them through the online HMRC CEST test (link below).
It’s an issue that the government has being trying to attack for years – and we’ve been following their attempts very carefully.
As the NHF states: “During the Queen’s Speech Boris Johnson gave an early indication that the government is concerned that the rising rates of self-employment across many sectors, including hair, barbering and beauty, could come at a cost for the government and taxpayers in lost revenues.”
And we know that Johnson recently said: “We will increase fairness and flexibility in the labour market by stopping employers and workers experiencing significantly different outcomes from flexible forms of working.”
We continue to watch this space very carefully!
More info from HMRC can be found here:
HMRC’s CEST test can be found here:
Many salons, barbershops and spas pay their employees earlier than usual over the Christmas period.
If this is the case, you should still report your normal (or contractual) payday as the payment date on your PAYE RTI return to HMRC (the full payment submission (FPS)) and ensure that the FPS is submitted on or before this date.
For example: if you pay on Friday 20 December 2019 but your normal/contractual payment date is Tuesday 31 December 2019, you should report the payment date on the FPS as 31 December and ensure the submission is sent on or before 31 December.
Doing this will help to protect your employees’ eligibility for Universal Credit, as reporting the payday as the payment date may affect current and future entitlements.
Salonfrog Clients who use our payroll service need not worry about this, as we do this for them anyway!
HMRC publishes its employer bulletin 6 times a year, giving employers the latest up-to-date information on payroll topics.
Although some of it is irrelevant to Salons and Barbershops, some of it is real need-to-know stuff if you employ staff.
Any questions, don’t hesitate to ask us!
The very handy on-line HMRC calculator shows how much statutory minimum holiday each of your employees is due each year – in both days and hours. Vital for staying within the law!
But it’s suddenly disappeared!
The reason is simple. There have been a number of court cases recently, which if you input the details into the calculator, it might not generate the correct answer!
So work is on-going by HMRC to fix it and hopefully we’ll see it up again soon.
Almost all of your staff are legally entitled to 5.6 weeks’ paid holiday per year, which is made up of:
Until 2012, employers tended to only include an employee’s basic pay when calculating the amount to be paid while they were on holiday.
However the case of British Airways plc v Williams & Ors changed all of this.
The ruling determined for the first time that other pay elements which are “intrinsically linked to the performance of the duties” had to be included as well. From this, the principle was born that employees should be no worse off financially from taking holiday.
If your staff are on fixed hours each month or are on fixed pay (salaried) then their holiday pay is simply the same at the end of the month as they would normally have received. Easy.
However, the situation becomes more complicated when your staff do not work fixed or regular hours, or receive commission/bonuses – i.e. they don’t receive the same amount of pay each month. In these circumstances an employer is required to calculate holiday pay by looking back at the worker’s previous 12 paid weeks (known as the holiday pay reference period) to ensure they are not worse off.
Since 2012, the UK courts have decided that this look back must include: wages, commission, bonuses, travel-time allowances, payments related to professional or personal status (eg long service), guaranteed/contractual overtime, overtime that must be worked if requested by the employer, and even voluntary overtime.
Having looked at how much the employee earned over these 12 weeks, holiday pay can then calculated as an average of this.
As an example, your stylist taking holiday will be paid not only their hourly rate, but also an amount of commission that they ‘could’ have earned if they had not had holiday but worked in the Salon instead.
If the stylist takes their holiday in January (when you are typically quieter), their holiday pay could well be more than you would have actually paid them since it will include commissions they made in December (the mad month).
From 6 April 2020, the 12 week look back period increases to 52 weeks, so employers need to have already started keeping payroll records detailed enough to allow this 52 week look-back calculation. This can be quite an admin headache!
Since 2012, a number of cases have gone to court to establish more and more clarity on the requirement. Only this year, the case of East of England Ambulance Service NHS Trust v Flowers and Ors confirmed that all types of overtime must be included in the holiday pay calculation – not just compulsory. This decision reinforced the one in Dudley MBC v Willets in 2018, where voluntary overtime undertaken only once a month was considered enough to be regular and so included in holiday pay.
There’s a lot more detail to this requirement and also numerous issues (such as what to do if you don’t have 12 weeks’ worth of info to look back on), so please contact us if you need to. Also, if you are a Client of Salonfrog and you have our Payroll bolt-on service, this is all taken care of.
As an employer, you have many responsibilities.
We ensure all this is done with our payroll bolt-on service.
Contact us for any advice!
Over the summer (and Christmas), many Salons take on temporary staff to fill holiday jobs; and like other employees, these seasonal workers have to be assessed to see if they qualify for automatic enrolment into a workplace pension.
Assessing these types of staff can take more time because of varying hours and earnings.
Employers who know their staff will be working for them for less than three months can use the ‘postponement’ option – which effectively puts off the need to assess them for three months.
During this postponement period, employers will not need to put staff into a pension unless they ask to be put into one. The Pensions Regulator has an online tool to help employers who have seasonal or temporary workers:
Clients who have our payroll service can leave this to us!
What is PIID
Said “P -eleven-D” this is an annual report that employers of staff are required to submit to HMRC if any of their staff are provided with any benefits or expenses. It tells HMRC the value of these benefits, and so how much tax and NI is due.
P11D and P11D(b) Filing and Payment Deadlines
P11D forms due must be sent to HMRC by 6 July; failure to do so may result in a penalty.
So for this year, the deadline for telling HMRC about Class 1A National Insurance contributions (NICs) that you owe for the tax year ending 5 April 2019 is 6 July 2019 at the latest.
The payment of the Class 1A NIC must then reach HMRC by 22 July (19 July if you pay by cheque).
What do I need to file?
If you paid any benefits and/or non-exempt expenses, or payrolled benefits you should file a P11D(b). Include all benefits liable to Class 1A NICs, even if you taxed them through your employees’ pay.
You should send a P11D for each employee receiving benefits, unless you registered before 6 April 2018 to tax them through the payroll.
You only need to tell us that you don’t need to make a return if we sent you a paper P11D(b), an electronic notice to file a P11D(b) or a reminder to file a P11D(b) letter.
If you have our Payroll Service, then we take care of all this for you.
When taking on a new employee you will need to know their National Insurance (NI) number (amongst other things).
There are 4 possible ways to obtain this, if your employee doesn’t know it.
In order of speed: