From 6 April 2021, changes to the off-payroll rules (also known as IR35) will take effect in the private sector. These rules have been in place for the public sector since April 2017 and are aimed at shifting the responsibility for determining employment status from an individual contractor to the organisation that engages them.
The extension of the rules means the following organisations will now be responsible for determining if any of the contractors they engage with are employed or self-employed for tax purposes:
- Public sector authorities which engage contractors who work through their own limited company (personal service company – PSC) or other intermediary
- Medium and large-sized private sector organisations which engage contractors who work through their own PSC or other intermediary, and employment agencies and third parties which supply contractors.
The rules do not apply to small private sector organisations, principally being an organisation that satisfies two of the following criteria:
- Annual turnover less than £10.2m
- A balance sheet of less than £5.1m; or
- Fewer than 50 employees.
For small private sector organisations therefore, the task of determining employment status remains with the individual contractor. It should be noted that where an organisation is part of a group, the turnover, balance sheet and employee figures must be considered in relation to the group as a whole.
To assist those affected organisations (i.e. PSCs and medium and large-sized private sector organisations) in determining the employment status of their engaged contractors, HMRC developed the Checking Employment Status for Tax tool. If the rules apply, the organisation paying the contractor’s PSC or other intermediary is then also responsible for deducting income tax and National Insurance Contributions (NIC) at source, as well as paying any employers NIC that are due.
A recent HMRC briefing has confirmed a supportive approach to helping those organisations affected by the extension of the rules, which includes:
- A light touch approach to penalties, with no penalties in the first 12 months for inaccuracies unless there is evidence of deliberate non-compliance
- Not using information acquired as a result of the changes to the off-payroll working rules to open a new compliance enquiry into returns for tax years before 2021 to 2022, unless there is reason to suspect fraud or criminal behaviour
- Using a specialist team for off-payroll working compliance to ensure both high-quality support and that any non-compliance is challenged effectively and efficiently.
The briefing provides an overview and a selection of case studies, setting out what taxpayers can expect from HMRC. A spokesperson for HMRC said: ‘The publication explains how we will continue to support organisations to comply with the off-payroll working rules once they take effect on 6 April 2021. It also shows what HMRC will do to identify and step in where organisations deliberately try to avoid paying what is due under the rules.
‘This builds on our existing commitments to a supportive approach to help organisations comply with the new rules.’
You can read HMRCs recent IR35 briefing here.
You may want to read our previous guidance on IR35 here:
If you need any assistance or have any queries regarding the issues mentioned above, please do get in touch with a member of the team: