Off-Payroll Working Rules

A major change regarding the responsibility for applying the off-payroll working (IR35) rules to contracts made in the “Private Sector” will be applied from 06 April 2021. 

The change was introduced for contracts made in the “Public Sector” in April 2017 and proposed to be applied to the “Private Sector” in April 2020. The introduction was delayed due to the coronavirus pandemic.

Following the Budget of 3^rd March 2021, the Government has indicated that there is no intention to further delay the implementation.

Our clients are being kept fully up-to-date with regards to any changes via our regular email updates and Advice Notes.

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The IR35 legislation considers whether the Contractor is really an employee and should, therefore, be taxed as such rather than truly being employed on their own behalf.  The IR35 rules have been in existence since April 2000 and are not new. To view visit 

http://www.foremansllp.com/news.php?newsID=426

HMRC are looking to identify disguised employment and to apply income tax appropriately.

The main change to be introduced on 06 April 2021 is to shift the responsibility of considering the IR35 rules from the worker, to the fee payer.

The rules can be applied to anyone working through an intermediary. If an individual works  through a limited company (PSC) the limited company is classified as an intermediary.

From April 2021 the fee payer will be expected to apply the rules to determine if they believe who is effectively an employee. If they deem that anyone in fact “fails” the rules they will pay, even if it is through a limited company, after the deduction of income tax and employee’s national insurance.

Will these rules be applied to all contracts?

Please note that if a fee payer is classified as small, they will not need to consider the IR35 rules and can pay a limited company as normal. To be a small company the fee payer must meet at least two of the following conditions:

1.      Annual turnover of not more than £10.2m

2.      Balance sheet total of not more than £5.1m

3.      Not more than 50 employees

As far as we are currently aware the IR35 rules will not be applied to Sole Traders or to Umbrella Payroll Companies.

What happens if a role is considered to fail?

When the proposed changes are implemented in April 2021 and if the fee payer believes that you are within IR35 they should provide the worker with a letter stating that they believe the

rules should apply to that role and explain the reasoning behind this. The document will be referred to as a Status Determination Statement (SDS).

If any worker disagrees with the decision, they may wish to appeal to the fee payer, reasons would need to be submitted as to why one believes that the fee payer’s decision is incorrect. A formal appeal process must be established by the fee payer.

The fee payer should NOT apply a blanket status assessment across all contractors. They should consider the individual contractual terms and actual working arrangements for each contract.

If the determination is correct, then the fee payer should deduct Income Tax and National Insurance from the payments to the limited company before an employee of the limited company is paid.

What can I do to prepare?

Firstly, check with your fee payer whether they will need to apply the rules.

Secondly you need to assess whether your contract will be considered a “fail”. Each contract will be assessed separately, and you may have a contract that pass and some that fails.

You could have your contract independently assessed by an IR35 expert and / or you could use the HMRC check employment status for tax (CEST) online tool.  If you want an independent review, Foremans can help to arrange a review for you. The link to the HMRC CEST tool is:

www.gov.uk/guidance/check-employment-status-for-tax

Be aware the CEST tool is an indication of HMRC’s interpretation of the IR35 rules. The regulations are open to interpretation and are not a set of clearly defined rules.

If you pass the CEST assessment, keep a copy of a result with the corresponding contract in case of future investigation.

Each contract should be assessed separately, and anyone may have a contract that passes and one that fails, so working through both methods at the same time. 

In the case of a contract which fails you may wish to consider working as a Sole Trader or through an Umbrella Payroll Company.

Foremans can assist with either of these alternatives.

We offer a Sole Trader Service that allows you to maintain all your taxes, records, and payments in the same compliant way as we maintain your Limited Company records, with no loss of weekly processing assistance or personal service.

and

For those contracts that require an Umbrella Payroll Solution, we can also provide Umbrella Payroll Services through Foremans (UK) Ltd. If this is required for your current situation, please don’t hesitate to contact us.

Unsure which option best suits your circumstances? Why not ask us for a free trading options illustration, or just contact our friendly team for free initial advice.

Foremans LLP

contactus@foremansllp.com

tel: 01244 625500 / 01978 364000