If your business utilises subcontractors who provide personal services through limited companies or other intermediaries, then you may have to make substantial changes to comply with new rules which take effect from April 2021. It is vital that you act now to ensure compliance. These rule changes were due to come in last April but were delayed due to the COVID-19 pandemic.
What are the off-payroll working rules?
The IR35 legislation was introduced in 2000 to ensure that individuals working through an intermediary (often a personal service company – PSC) pay broadly the same amount of income tax and national insurance contributions as direct employees.
The off-payroll working rules stipulate who is responsible for determining the employment status and paying the necessary tax and NICs.
What are the changes?
The off-payroll working rules were reformed for the public sector in April 2017. This shifted the responsibility for determining employment status and paying the necessary tax and NICs from the individual working through the intermediary to the public authority engaging them.
The reformed rules will be extended to medium and large organisations in the private sector from April 2021. In the private sector, it is currently the responsibility of the PSC to consider employment status and account for tax and NICs where necessary, but from April 2021 this responsibility will be on the engager.
How to prepare for the changes
HMRC has released a list of guidance for how to prepare:
- Look at your current workforce (including those engaged through agencies and other intermediaries) to identify those individuals who are supplying their services through PSCs.
- Determine if the off-payroll rules apply for any contracts that will extend beyond April 2021. You can use HMRC’s Check Employment Status for Tax (CEST) service to do this. (https://www.gov.uk/guidance/check-employment-status-for-tax)
- Talk to your contractors about whether the off-payroll rules apply to their role.
- Put processes in place to determine if the off-payroll rules apply to future engagements. These might include who in your organisation should make a determination and how payments will be made to contractors within the off-payroll rules.
What is a medium or large enterprise?
A private sector company that meets 2 or more of the following conditions will be regarded as medium or large under the new rules:
- Has an annual turnover of more than £10.2 million
- Has a balance sheet total of more than £5.1 million
- Has more than 50 employees
A simplified test applies to unincorporated entities – you must apply the rules if you have an annual turnover of more than £10.2 million and are not a company, a limited liability partnership, an unregistered company or an overseas company.
There are also rules which cover connected and associated companies. If the parent of a group is medium or large, their subsidiaries will also have to apply the off-payroll working rules.
Please talk to us if you have concerns regarding these new rules.
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