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IR35: Changes to off payroll working Legislation

IR35, also known as the ‘off-payroll’ legislation was originally introduced in April 2000 to ensure that workers who provide their services through an intermediary (typically their own limited company or an agency) but who would, if contracted directly, be an employee, pay the same amount of tax and National Insurance as employees.

CHANGES FROM APRIL 2021

From 6th April 2021 responsibility for determining the status of workers who are engaged through an intermediary will change. Consequently responsibility for operating payroll and accounting for tax and National Insurance will also change.

New rules which were applied to the public sector from April 2017 are now extended to the private sector.

From 6 April 2021, responsibility for determining a worker’s status will be extended to all medium and large organisations in the private sector that meet at least two of the following conditions:

  • Annual turnover of more than £10.2 million
  • Balance sheet total of more than £5.1 million
  • More than 50 employees

If the parent of a group meets these conditions, any subsidiaries will also have to apply the new rules.

Initially at least, smaller organisations in the private sector (i.e. those that do not meet the conditions set out above) will not be required to determine the employment status of workers engaged through an intermediary. This responsibility will remain with the worker’s intermediary, as will any associated payroll obligations.

The new rules will only apply to services carried out from 6 April 2021 onwards.

Whilst HMRC has confirmed that other than cases of deliberate non-compliance businesses will not have to pay penalties for errors in the first year, businesses should ensure they have robust processes in place to determine employment status, dealing with queries and handling appeals.

It follows that if a worker is determined to be employed for tax purposes, it is the fee-payer or “deemed employer” who has responsibility for including that worker on an appropriate payroll and accounting for employment taxes and National Insurance and applying the apprenticeship levy.

However, and confusingly, the fee-payer is not responsible for deducting student loan repayments and workers should account for student loan obligations in their own tax return.

Deemed employers, and their contractors, will also need to be aware that the worker is not an employee for employment law purposes, so under IR35 legislation they are not entitled to statutory payments, automatic enrolment into a pension scheme or employment rights such as holiday pay.

This is a complex area and we will be happy to provide further case specific advice. Useful guidance can be found at:

 https://builduk.org/ir35-changes-a-practical-guide/

https://www.gov.uk/topic/business-tax/ir35

Whilst HMRC employment status checker can be found here.

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

Disclaimer: The information in this article is provided for general information only and does not constitute legal or professional advice.  We cannot accept responsibility or liability for any actions you may take, or not take, based on this information.

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