The off-payroll working rules came into force on 6th April 2021 in the private sector following the deferral from last year. But who does it apply to and what impact will it have on your business?
Will the changes affect me?
The changes to Off-Payroll (IR35) rules will affect the following according to the HMRC policy paper:
- Individuals supplying their services through an intermediary, such as a personal service company (PSC), and who would be employed if engaged directly.
- Medium and large-sized organisations outside the public sector that engage with individuals through PSCs.
- Recruitment agencies and other intermediaries supplying staff through PSCs.
Existing rules remain in place if an individual engages through a PSC with with a small non-public end-user organisation. This means the decision as to whether the rules apply would still lay with the PSC.
HMRC follow the Companies Act definition in determining whether a business is 'small'. A business fails to be small if it exceeds two out of three of the following criteria:
- Turnover above £10.2m
- Gross Assets above £5.1m
- Employees above 50
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What are the off-payroll (IR35) working rules?
According to the HMRC policy paper:
- The aim is to ensure that an individual who works like an employee, but through their own limited company, pays broadly the same Income Tax and National Insurance contributions as other employees. (does not apply to the self-employed)
- Will apply to engagements with medium or large-sized organisations in the private and third sectors. Responsibility will shift for operating the off-payroll working rules from the individual’s PSC, to the organisation or business that the individual is supplying their services to or the ‘end-user’.
- Engagements with small organisations outside the public sector are exempt, minimising administrative burdens for the vast majority of businesses.
What do I need to do?
The HMRC issued guidance in April 2019 on what you need to do 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 2020. You can use HMRC’s Check Employment Status for Tax service to do this.
- Start talking 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.
Determining employment status can be complex. It is possible for someone to have one status in employment law, but a different status for tax purposes. So, we have produced a guide that you can download here.
"Workers' are a distinct legal category. Typically they are those working on a more casual basis, say job-by-job who are free to accept or turn down an offer of work made to them."
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Do contact us if you would like to discuss the Off-Payroll (IR35) changes and what you need to do to prepare