New rules for off-payroll workers are set to come into force from 6 April 2021.
From April 2017, the rules changed for individuals working through a PSC (“Personal Service Company”) / intermediary for clients in the public sector – the ‘Worker’. Previously the PSC / intermediary would need to decide their Worker’s status, however from April 2017, the client / fee-payer (being the public sector organisation) would need to decide their Worker’s status and this becomes the responsibility of the client / fee payer (receiving the individuals services) to get it right.
The off-payroll rules (also known as IR35) now apply to clients / fee-payers who are medium and large private organisations starting from 6 April 2021, this was pushed back from 6 April 2020 due to the coronavirus pandemic.
When do the new off-payroll rules apply?
The rules do not apply to private companies who are classed as small. However, this is seen by many commentators as a trial run before extending to all businesses so if you are under the following size limits, it is still worth bearing in mind for the future.
A company is not small if it breaches 2 or more of these limits:
- Turnover is more than £10.2m
- Gross assets are more than £5.1m
- Employees number more than 50
The rules apply a hypothetical question to the terms under which the worker provides services to the end-client which asks: “if the intermediate body (e.g. the intermediary / PSC) did not exist, would the relationship between the end-client and the Worker be that of employer and employee?
There’s a useful tool on HMRC’s website to help identify the employment status for a worker (there are different thoughts about how accurate this tool is, but if you are going against the results, you will need a very good reason, should HMRC ever challenge the status applied).
The Worker should receive an employment status determination from the client / fee-payer as well as reasons behind the determination. The Worker can dispute the decision if they disagree with the determination and in the meantime, the client would continue to pay the intermediary based on their determination. The client has 45 days to respond to a disagreement.
When the rules apply to a particular contract, the client / fee-payer must calculate the deemed direct payment, which accounts for employment taxes and national insurance contributions and other costs / deductions through RTI. This is then paid to the PSC / intermediary of the Worker. There are specific steps to take in order to calculate this.
When the PSC / intermediary pays the Worker, they do not need to deduct tax and NI again. You would either pay the Worker as a salary through your payroll but don’t deduct tax and NI, or pay the amount as a dividend (if the worker is a shareholder of the intermediary) but this will not be recorded on the workers self-assessment tax return.
If you are a medium/large organisation, we suggest that once you have identified which off-payroll Workers are affected (if you haven’t already done so), you then start talking to them ahead of 6 April 2021.
If you are either a medium/large private organisation or you are an individual working via a personal service company, these off-payroll rules could apply to you.
How can I find out more about the new off-payroll rules?
Please contact us and we will be happy to provide you with further advice.