Are you unsure if, and how, you may be affected by the changes to off-payrolling rules – more commonly known as IR35?
Well, the news is you’ve got more time to get your head round them.
Chief Secretary to the Treasury, Stephen Barclay, has announced that the off-payroll IR35 rules, which were meant to be rolled out to the private sector from April 2020 will now be delayed for 12 months.
Mr Barclay said the regime, which would have required large and medium-sized organisations to determine the employment status of any contractors they engaged, would be deferred, but reiterated that the government remained committed to its introduction from April 6, 2021.
Here’s Haines Watts Worcester’s definitive guide.
What actually are the “off-payrolling” rules?
Off-payrolling rules were introduced in 2000. The core aim was to remove the tax advantages of individuals who provided services via an intermediary – usually a worker’s own personal service company (PSC) or an agency.
To decide whether a worker was caught by IR35 rules, HMRC based the criteria that had to be satisfied on the same set of factors that were used to determine whether an individual was classified as employed or self-employed. Crucially, however, the responsibility for correctly determining whether an individual is employed or self-employed, and therefore caught by IR35 or not, rested with the business which engages the services of the worker i.e. the worker’s PSC.
What is changing?
From April 6, 2021, a reform of the IR35 rules will shift the responsibility for determining how a contractor’s fee should be taxed from the contractor and their PSC to the end user (i.e. the client). This will bring the private sector in line with the legislation already in place for the public sector. If IR35 applies, the client or, if intermediary agencies are involved, the agency as fee-payer will be responsible for deducting tax and National Insurance contributions (NICs) at source.
It is important to note that the set of factors used to determine whether a worker is employed or self-employed is not changing – just the entity who decides is changing.
Do these changes apply to everyone?
No. The new rules will only apply to medium and large businesses in the private sector who are the end user of the worker’s services and to the fee payer, if different. A medium/large business is defined as having two of the following criteria:
- Turnover of more than £10.2m
- Balance sheet total of more than £5.1m
- Fifty employees or more
What does it mean for end users who are medium/large businesses?
The key obligations for the end user under the new changes are:
- Determine the contractor’s tax status in relation to the engagement. This can be done by using HMRC’s updated Check Employment Status Tool (‘CEST’)
- Issue a Status Determination Statement (‘SDS’) to workers regarded as employed and any agency (see below). There is a 45 days appeal period for disputed status decisions
- If the client is the fee-payer (as opposed to an agency) deduct income tax and employee NICs from the payment and account for them to HMRC using Real Time Information (RTI)
- Account for employers’ NICs.
Haines Watts is encouraging clients and agencies to start putting processes in place to manage IR35 changes next year if they haven’t done so already.
While there may be some work required in the short and medium term to comply with the legislation, it’s worth considering that the factors which decide whether a worker is employed or self-employed haven’t changed – it’s just who decides that has.
For advice, please contact our tax team via the details below.
Want to know more? Call us on 01905 612347 or email firstname.lastname@example.org