Reminder: Off-payroll working rules from April 2021
Following a 2018 consultation, HMRC originally planned to roll out the Off-Payroll Working (IR35) rules to the private sector from 6 April 2020. However, the sudden impact of COVID-19 in March led to a last-minute 12 month delay to April 2021 (one that apparently cost HMRC £1.2bn in lost taxes for 2020/21).
The new rules shift the responsibility to the private sector engager to determine the employment status and make appropriate PAYE and National Insurance Contributions (NIC) deductions for any workers they engage with through Personal Service Companies (PSCs), where the worker would be employed were it not for the PSC. Where the worker is engaged via an agency, the obligation to operate PAYE and NIC will fall on the agency or organisation in the labour supply chain making the payment to the worker’s company.
Small company exemption
The private sector roll out applies only to medium and large-sized engaging businesses, so small businesses are exempt and are those which meet two out of the following three tests:
- annual turnover – not more than £10.2m
- balance sheet total – not more than £5.1m
- number of employees – not more than 50
Unincorporated businesses only need to apply the annual turnover test to a single accounting year rather than a two year test which applies for incorporated businesses.
Where the new rules apply, the end business must inform both the party they are engaging with (if an agency for example) and the worker of their decision whether or not the engagement is caught by IR35, and must take “reasonable care” when doing so.
Under the new rules, workers can formally appeal a status decision, which provides for a 45-day period during which that decision can either be confirmed as correct or amended. This process can apply to both private and public sector engagements.
HMRC guidance and CEST
To help businesses prepare for, and operate the new rules, HMRC has published guidance, including targeted education packages, webinars, workshops and one-to-one sessions with businesses in particular sectors. HMRC continues also to enhance its ‘Check Employment Status for Tax’ (CEST) online tool, following negative feedback on previous versions and recent tax tribunal rulings that have contradicted status outcomes given by CEST.
There remains strong opposition to these changes, with many claiming it will place unreasonable compliance and financial burdens on businesses who need to plan for and apply the new rules.
The government clearly has bigger issues on its hands right now, with the ongoing economic impact of COVID-19 and Brexit to wrestle with, so it remains to be seen whether the former in particular might again affect the deferred April 2021 roll out.
Assuming the rules do take effect from April 2021, businesses using contractors should be looking carry out employment status audits and review their admin systems. Given the right approach and sufficient planning ahead, it may be possible in some cases to maintain a flexible workforce that remains outside of IR35.
For some businesses, it will be necessary to seek urgent independent advice for professional opinions on employment status and help to identify areas of risk.
We have considerable experience within Garbutt + Elliott on both employment status and IR35 matters and will be happy to provide assistance – for more information on any of these matters highlighted click here or alternatively email Richard Whitelock firstname.lastname@example.org.