Changes to Off-Payroll Working – IR35
Nicola Cantrill from our payroll team discusses the forthcoming changes to IR35, which were due to come in last year, but delayed until 6th April 2021 because of the Covid pandemic.
It often works out a lot more practical to hire an off-payroll worker, such as a contractor. New rules taking place from 6 April 2021 will mean, however, that some businesses are now responsible for deciding whether their contractors work off-payroll or as an employee.
What does off-payroll mean?
If someone is doing work for your company but they're not on an employee, they're described as being 'off-payroll'. Imagine, for example, that you engage a freelancer who trades through a limited company or is supplied by an agency. You pay their invoice rather than treating them as PAYE. At the moment, the worker decides whether they should be classed as an employee or not. From April this year, this arrangement changes.
What are IR35 off-payroll working rules?
The off-payroll working rules ensure that workers providing services to a client pay around the same amount of tax as if they were an employee on payroll.
Off-payroll working usually applies when a worker (such as a contractor) provides their services through their own limited company or an intermediary, such as a partnership.
Currently, it is the worker's responsibility to decide whether their work is employment or off-payroll, however new changes mean that some companies now bear more responsibility for this decision.
Where does IR35 apply, from 6 April 2021?
From this date, any public-sector organisations, or any medium or large organisations or businesses outside this sector, are liable for deciding whether their workers are to be classed as employees. However, if the client is small, it is still the worker's responsibility to make the decision. An organisation is classed as medium/large if it meets 2 or more of the following conditions:
- Has an annual turnover of more than £10.2 million
- Has a balance sheet total of more than £5.1 million
- Has more than 50 employees
For Clients
The client (organisation that receives the service) should spend time reviewing the best status for their worker. They must then issue a Status Determination Statement (SDS) to the worker in order to conclude whether or not they are an employee. If the client decides to deem the worker as an employee, they must make payments through PAYE.
For Workers
If you wish to change the status that your client has specified on your SDS, you must register a disagreement to the notice. The organisation then has 45 days to respond. If you and the client can't reach an agreement, you can repeat the process. If there is still no agreement at that point, the final route you can take is to enter the income on your self-assessment tax return.
You have a right to find out whether your client is classed as a 'medium to large entity'. Our team can help to find this information and make the necessary adjustments.
If you are a worker who is confused about off-payroll working, or you have not yet received a Status Determination Statement (SDS), we can help by going through how the new rules might affect your employment status and the steps you need to take.
If you receive services from a worker and wish to know more about the rules and what liability your organisation holds, our team can advise and implement the correct processes for your circumstances.
Please don't hesitate to contact a member of the team by calling on 0115 955 5500 or emailing enquiries@pagekirk.co.uk.