IR35 Off-Payroll Working from 6 April 2021

As a result of the coronavirus pandemic, the changes to the off-payroll working rules were delayed for a year until 6 April 2021. With the date approaching quickly, we have summarised in this blog the key points you need to be aware of ahead of the change.

From 6 April 2021, all public sector clients and medium/large organisations in the private sector, now become responsible for determining whether the off-payroll working rules should apply to their workers, and for paying the right tax and NICs.

Will these changes affect my organisation?

If you use the services of any workers who are not on your payroll (ie contractors, freelancers or agency workers) you are an ‘end-client’ for the purposes of these new rules. Unless you are a ‘small’ end-client these changes will affect you.

Small end-clients (as well as medium and large end-clients) remain responsible for assessing the tax employment status for any ‘self-employed’ workers who invoice in their own name (rather than through a company).

What is changing?

From 6 April 2021, all medium and large private sector end-clients engaging the services of a worker through an intermediary (such as their own limited company or agency) will need to:

• Assess the tax employment status of all off-payroll workers providing services through an intermediary after 6 April 2021.
• Issue a Status Determination Statement (SDS) to all off-payroll workers, with reasons for reaching the individual’s tax employment status conclusion.
• For all ‘deemed employees’ deduct tax, NICs and the Apprenticeship Levy from invoices raised for work done after 6 April 2021. This can be delegated to an agency.
• Set up a Disagreement Process, so SDS appeals by workers can be responded to within the 45-day time limit.

Am I a small end-client and therefore exempt?

If you are an end-client, it is critical to decide if you are exempt from the rules because you are small. The rules are complex and can not be covered here in full. Partnerships and sole traders are small if their turnover is below £10.2m. Companies and LLP’s follow the Companies Act rules and will be small unless 2 out of 3 of the below limits are exceeded for two consecutive years:

• Turnover – £10.2m
• Gross assets – £5.1m
• Employees – 50

Figures for groups, connected companies and joint ventures need to be aggregated before considering the limits.

The end-client will have to review the limits each tax year to check if the rules apply. The limits are applied to the latest year where the accounts filing date falls before the start of the tax year (and the prior year). For a 31 July year-end, the year ended 31 July 2019 is the relevant year as the filing date of 30 April 2020 (9 months after the year-end), is the last accounts filing date before 6 April 2021). The limits are applied to the year ended 31 July 2019 and 31 July 2018 to see if the small exemption is met for the tax year starting on 6 April 2021.

What if I ignore my obligations?

HMRC has made it clear they will take a hard line with deliberate non-compliance. They have a specialist team poised to check that organisations are fulfilling their responsibilities under these new rules. HMRC have confirmed they will not charge penalties for errors arising before 6 April 2022, unless there is deliberate non-compliance. Also, so long as there is no suspected fraud or criminal behaviour; HMRC will not challenge contractor relationships prior to 6 April 2021, just because they now fall under the off-payroll working rules.

If HMRC investigates your organisation and determine that any workers should have been classified as employees or deemed employees, HMRC will collect the unpaid duties from you, not the worker. This would include the employee tax, employee and employer NI, apprentice levy, interest and penalties (subject to the 12-month reprieve mentioned above). HMRC can collect 6 years back tax, so the cost can be significant.

How can we help?

Contact us for more in-depth information. We can also provide assistance making tax employment status determinations and setting up internal procedures to manage these new rules.

As HMRC intend to check compliance with these new rules, it is worth considering taking out our tax investigation fee protection insurance to cover our costs of assisting you with any HMRC compliance reviews. For more information see our article.

If you are a contractor and want to understand how these changes will affect you please contact us on website@wrightvigar.co.uk.

Our factsheets provide detailed information on the urgent steps you now need to take to assess your exposure under these new rules

Fact Sheet for Small-End Clients

Fact Sheet for Medium/Large-End Clients

Fact Sheet for Contractors