Two become one: the IR35 impact of owning more than one company

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Many entrepreneurial people have more than one company. Often those companies operate in totally different sectors and are operationally independent from one another.

There is a lot of current tax chat focused on the IR35 legislation and the slow creep of responsibility up the supply chain to the engager themselves. In recent years this has been introduced to public sector bodies, and subsequently to the private sector for ‘large’ companies. Or in HMRC reverse speak, for ‘not small’ companies.

Are you a ‘not small’ company?

The rules defining ‘small’ are taken from the Companies Act and are mirrored for the audit threshold criteria. Company owners are comfortable with the idea that their structure doesn’t need an audit so therefore they believe they don’t need to worry about IR35 applying to them. This is not quite the case.

For audit purposes the tests apply to the companies where they have a corporate link – i.e. companies owning other companies. The IR35 net is cast more widely. For a collection of companies to be merged for IR35 purposes they simply have to have the same ownership, which includes ownership by individuals. All of that person’s companies’ turnover (no matter how unrelated in activity, how small or how separate) must be aggregated to establish if the ‘off-payroll worker’ turnover test has been breached. If it has, all companies may be affected. Including the small side enterprise owned by the serial entrepreneur, which will find itself burdened with the requirement to assess its workers’ employment status and issue Employment Status Determination certificates to its workers. This requirement could easily be overlooked for those small ancillary companies.

The off-payroll worker rules came in for the private sector from April 2021 and we are currently in a 12 month soft landing phase. This doesn’t mean that you don’t have to think about it for those 12 months, it just means that there’s currently no penalties for getting it wrong.

If you need advice on IR35 in the private sector speak to Ellis & Co accountants in Chester to find out more.