The changes to the off-payroll rules, that were planned for April 2020, were delayed because of the coronavirus pandemic. The new rules will now come into effect on 6th April 2021. Is your business ready?
In April 2021, there will be significant changes in how the off-payroll working (IR35) rules are applied to the private sector. From 6th April 2021, it will be the contracting company, rather than the personal service company, that will be responsible for the “employment status determination” and to ensure that the correct tax and National Insurance are paid to HMRC.
Background
Off-payroll working rules apply where a worker provides services to a company through an intermediary, such as their own personal service company (PSC). The use of a personal service company, where IR35 rules are not correctly applied will often result in an overall lower tax and National Insurance position. The intention of these changes is to encourage compliance with the IR35 legislation which has already been in place for many years.This should ensure that individuals working like employees but through their own limited companies will pay roughly the same amount of tax and National Insurance as those people directly employed by the company.
The changes for large and medium sized companies
Prior to 2017, it was the responsibility of the worker’s personal service company to determine their employment status. However, in April 2017 the rules changed for the public sector, with the responsibility for determining the employment status shifting from the personal service company to the organisation for which they worked.
From 6th April 2021, private sector large and medium sized companies will now be responsible for assessing the employment status of workers and, if appropriate, for deducting and paying the relevant tax and National Insurance Contributions to HMRC.
Small companies should not be affected by the change in legislation so the personal service company will continue to be responsible for assessing their employment status. To qualify as a small company, the company must satisfy at least two of the following three conditions:
- Turnover of £10.2m or less;
- Balance sheet assets of £5.1m or less;
- 50 employees or less.
Who will not be affected by these reforms?
For many companies there will be no change. Contractors, who are currently following the existing rules correctly will experience little impact. These changes also do not prevent people working through their own limited companies and will not affect the self-employed.
Changes announced in March 2021 Budget
In the 2021 Budget, the government announced minor technical changes to improve the operation of the rules, in response to feedback from stakeholders, which will be legislated for in Finance Bill 2021. The government will make changes to the rules regarding provision of information by parties in the labour supply chain. These changes will make it easier for parties in a contractual chain to share information relating to the off-payroll working rules by allowing an intermediary, as well as a worker, to confirm if the rules need to be considered by the client organisation.
HMRC Support
HMRC has published a number of useful guidance notes and a “check employment status for tax” tool on the HMRC website.
Briefing on reform of off-payroll working rules
Understanding off-payroll working
Prepare for changes to the off-payroll working rules
April 2021 changes to off-payroll working for clients
April 2021 changes to off-payroll working for intermediaries
Fee-payer responsibilities under the off-payroll working rules
Check employment status for tax tool
Off-payroll working rules: communication resources
Get in touch with the DRG Chartered Accountants team
If you think you might be affected by these forthcoming changes to the off-payroll working rules (IR35), please do get in touch to find out more and to discuss your particular circumstances.
DISCLAIMER: This information is for guidance only, and professional advice should be obtained before acting on any information contained herein. We will not accept any responsibility for loss to any person as a result of action taken or refrained from in consequence of the contents of this publication.
