Changes to off-payroll working rules in the private sector will come into force in April 2021. These reforms are the biggest change that employment tax has seen for decades. Our straightforward guide helps affected businesses navigate through this complex area.
The changes to IR35 mean that medium and large companies which engage individuals through intermediaries (including personal service companies) will take on responsibility for paying tax and National Insurance for some of those contractors.
This will significantly increase the cost and administrative burden of engaging such contractors. Getting ready for this change will be a significant project for businesses.
Changes to the IR35 rules which were originally due to come into force in April 2020 were delayed for a year due to the coronavirus crisis. Many businesses breathed a sigh of relief. However, MPs voted against proposals for a delay and the changes will come into force on 6 April 2021. With businesses focusing on the immediate impacts of the pandemic and Brexit, many could find that the extra time slips by in a flash. With penalties for getting it wrong, it pays to start preparing now.
What is changing?
Currently, under tax legislation known as IR35, if a self-employed individual provides their services to an end-user through an intermediary (usually their own limited company), it is the responsibility of that company (rather than the end-user) to determine whether the contractor is a "deemed employee" for tax purposes. The company must account to HMRC for income tax and NI contributions.
Now, from April 2021, private sector end-users will be responsible for assessing such contractors' tax status and operating PAYE for them. These rules will apply to all businesses except small companies (i.e. those which benefit from the small companies accounting regime).
These end-users will need to:
determine whether they need to pay income tax and NI for each individual engaged through an intermediary;
issue each such individual with a written statement setting out the determination of their status and the reasons;
deduct income tax and NI contributions through PAYE; and
set up a process by which the individual can challenge the end-user's determination of their status.
Our Employment and Tax specialists can support end-users, contractors and intermediaries with all aspects of this challenging compliance project. Our services include:
reviewing contracts and working arrangements to advise on employment status
advice on implementation, including project timelines, negotiating new contracts, status determination statements and setting up the dispute resolution process.
We will work with your in-house Counsel, HR, Finance teams and external advisers to get your business ready with minimum fuss.
The steps to get ready remain essentially the same as this time last year with one important difference. The legislation now has a different definition of the types of intermediary which are covered. Businesses should now be assessing whether the new IR35 rules will apply to their contractor base.
With significant changes on the horizon it's important to be organised and check whether the rules apply to you. Take our quick quiz to find out whether IR35 applies to your business so you can start preparing for the future.
Preparing for the changes to IR35 is a significant project which will take time, so affected businesses should start getting ready now. We've set out a list of the key things that businesses need to consider when it comes to these changes, from auditing contractors to planning communications.
Producing Status Determination Statements is one of the trickiest aspects of compliance with the new IR35 rules. The client must take reasonable care when assessing the consultant's status and preparing the Status Determination Statement. There are some key dos and don'ts for clients in order to demonstrate that they have taken reasonable care.
The good news for businesses is that HMRC has made it clear that it will take a light-touch approach to enforcement of these new obligations, particularly in the first 12 months. Penalties for inaccuracies relating to the off-payroll working rules will also not need to be paid in the first 12 months unless there is evidence of deliberate non-compliance.
Want to hear more from us?
