Off Payroll Working from 6 April 2020 – are you ready?

The special tax rules applying to Personal Service companies (IR35) have been around for some time now. The rules were designed to deal with the perceived mischief of individuals who HMRC believe should be taxed as employees and effectively avoided this treatment.

IR35 has not been as successful as HMRC predicted and so, in April 2017, the Government introduced the off-payroll worker rules in the public sector. From 6 April 2020, these rules have been extended to medium and large organisations in the private sector, who now become responsible for determining whether the rules should apply, 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 workers who invoice in their own name (rather than through a company).

What is changing?

From 6 April 2020, all non-small 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 2020
• Issue a Status Determination Statement (SDS) to all off-payroll workers, with reasons for reaching the individuals tax employment status conclusion
• For all ‘deemed employees’ deduct tax, NICs and the Apprenticeship Levy from invoices raised for work done after 6 April 2020. 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 2018 is the relevant year as the filing date of 30 April 2019 (9 months after the year end), is the last accounts filing date before 6 April 2020). The limits are applied to the year ended 31 July 2018 and 31 July 2017 to see if the small exemption is met for the tax year starting on 6 April 2020.

What if I ignore my obligations?

If HMRC investigate 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. 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.

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

Read More

Fact Sheet for Small-End Clients

Fact Sheet for Medium/Large-End Clients

Fact Sheet for Contractors