News



Off Payroll Working

16 - 02 - 2021

What has changed?

 

The Government introduced changes to the rules determining who are classified as “off payroll” workers in the public sector in April 2017. The rules are being extended to cover all “large” businesses from 01 April 2021. The off-payroll working rules are similar to the IR35 tests and are frequently being referred to as “failing IR35”. The confusion arises from the fact that the IR35 rules are used to determine whether the off-payroll working rules apply.



Previously the IR35 rules were applied and the decision determined by the contractor. Going forward the employment status for contractors is instead to be determined by the client (the “fee payer”).

 

Who does it affect?

 

The off-payroll working rules can apply if a worker provides their services through their own limited company or an intermediary to the client. Intermediaries can include:

 

·         Personal Service Company (PSC)

·         Partnership

·         Individual

 

Who is responsible for checking if I fail the IR35 Rules?

 

The body paying the Contractor (your client) will determine if it believes that the contractor falls within the scope of the IR35 rules.

 

This can be done by using HMRC’s online “Check Employment Status for Tax” (CEST) tool. If the Contractor fails, the Employment Status Test then the body paying the contractor must deduct income tax (PAYE) and National Insurance (NI) and report the payment through the Real Time Information (RTI) system to HMRC.

 

What does it mean if I am classed as off-payroll working?

 

If the body paying the contractor deems that the Contractor fails, the Employment Status Test then the body paying the contractor must deduct income tax (PAYE) and National Insurance (NI) and report the payment through the Real Time Information (RTI) system to HMRC. THE PAYE and Employees NI is calculated on the net invoice value and the amount net of tax paid to the contractor’s business. The Contractors business then accounts for the deductions in its financial statements.


 

What happens if I or my company is VAT registered?

 

The PAYE and NI will be calculated on the net invoice value excluding VAT. VAT will be accounted for in the normal manner.

 

What happens if I or my company is registered under the Construction Industry Scheme (CIS)?

 

The income tax and NI calculation takes precedence over CIS.

 

What is the Employment Status Test?

 

The Employment Status Test is a similar test to IR35 to determine whether a contractor should be treated as an employee for tax and NI purposes.

 

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

 

You may wish to complete the test yourself to check if you might be affected by the issue. If you are unsure of the implications of any result that you receive please do not hesitate to contact us.

 

If I have PAYE and NI deducted, do I have employee rights?

 

No. Although PAYE and NI will be deducted the Contractor will not have any employment benefits such as Statutory Sick Pay, Pension etc.

 

Will this legislation affect me if I am employed through an umbrella payroll?

 

No. Umbrella Payroll companies are not regarded as Personal Service Companies and are not affected by the legislation.

 

Could I work through my company and through the off-payroll system?

 

Yes. You can have multiple contracts during a tax year which are paid in different ways, i.e. one contract affected by the IR35 public sector rules, and one contract unaffected.

 

If you would like to discuss any of the issues noted above and/or obtain an illustration of how this would affect you financially please contact us on:

 

01244 625 500 or 01978 364 000

contactus@foremansllp.com

 

Whilst all due care and attention has been taken in the preparation of these notes no liability

can be accepted for any omission or item contained therein.



 

 

 

 

 

Foremans LLP Umberlla
Foremans LLP