Changes to off-payroll working (IR35) rules

The new off-payroll working (IR35) rules came into force on the 6 April 2021.  Though payments relating to work or payments made before 6 April 2021 are not affected, the new rules need to be considered for all payments made on or after 6 April 2021, for work carried out on or after 6 April 2021.  This means that all businesses affected by the changes must ensure they are compliant as a matter of urgency if they have not done so already.

Delayed not cancelled

The IR35 changes are intended to create a clear distinction between independent contractors and full-time employees in the private sector, in order to ensure proper tax contributions.  To achieve this, IR35 shifts the responsibility for determining the status of contract workers and the associated tax risk to medium and large sized private companies.

The legislation was due to be introduced in April 2020.  However, the UK government delayed the changes to the IR35 tax rules until 2021 in response to the COVID-19 crisis.  This year-long delay allowed businesses who had not yet made the necessary changes extra time to ensure they are compliant and de-risked as far as possible before 2021.  That time has now elapsed.

Who is affected?

Some of the new IR35 rules already apply to all public sector clients, but the changes mean that the private sector (including third sector organisations, such as some charities) will also be included.  Those affected are:

  • Medium or large-sized non-public sector organisations that engage contractors who work through their own limited company or other intermediary
  • Public sector organisations (of any size) that engage contractors who work through their own limited company or other intermediary
  • Employment agencies (of any size) that supply contractors who work through their own limited company or other intermediary
  • Contractors who work through their own limited company or other intermediary

 

Small non-public sector organisations are not affected by the changes, but these must ensure they meet HMRC’s own definition of ‘small.’  Medium and large-sized clients are defined as private sector companies that meet 2 or more of the following conditions:

  • An annual turnover of more than £10.2 million
  • A balance sheet total of more than £5.1 million
  • More than 50 employees

 

Guidance updates

During the year’s delay, the government guidance relating to the IR35 changes has been updated.  Even those businesses that were prepared and compliant for the original April 2020 date may like to revisit HMRC’s detailed and technical guidance page. The most recent update included:

  • guidance on technical changes that were announced at the Budget which made sure the scope of intermediaries included in the rules was always as intended
  • guidance on the new Targeted Anti-Avoidance Rule to prevent artificial schemes
  • updates to existing guidance reflecting two technical changes to improve the operation of the rules (none of these changes affect engagements that were already in scope of the rules):
    • the first change allows an intermediary to confirm if one of the conditions for an intermediary is met, where the worker has not done so
    • the second change extends the consequences of providing fraudulent information to include any UK-based party in the labour supply chain
  • updates to existing pages in response to stakeholder feedback, including further details on:
    • when a status determination statement should be issued
    • what constitutes as reasonable care
    • payroll processes
    • calculating statutory payment entitlements

Changes to payroll software

If an engagement is inside the off-payroll working (IR35) rules, those responsible for deducting Income Tax and National Insurance contributions will need to use the ‘off-payroll worker subject to the rules’ indicator in PAYE RTI.  This functionality may be familiar in PAYE RTI.  It has been visible since April 2020 as it has been mandatory for the public sector since 11 May 2020.

This indicator must only be used by public sector organisations, medium or large-sized non-public sector organisations, or agencies, who are deducting Income Tax and National Insurance contributions as part of the off-payroll working rules.  Contractors (or their own limited company) must not use this indicator under any circumstances.

Support for off-payroll changes

HMRC are working with trade representative bodies to run webinars to help support companies adapting to the changes. Sessions have been planned up until May 2021, so there may still be opportunities to attend a workshop or a one-to-one advice call.  Details of further off-payroll support can also be found on the HMRC website.

However, as the responsibility for determining a worker’s status now lies with the client, more due diligence will be unavoidable.  This requirement for assessment may raise the temptation to employ off-payroll workers directly.  This means assuming a large chunk of risk.  Businesses will need to choose very carefully and should consider using Briars’ PeopleLogik service to help manage their risk.

Compliance driven risk protection

Organisations may not be able to completely outsource risk, but they are still free to de-risk as much as possible.  The higher quality intermediary service, the more risk can be outsourced.  A solid intermediary service such as PeopleLogik not only takes on liability for you but is supported by the Briars Group tax team’s 25 years of experience.

PeopleLogik is a service that protects your business from risk.  We will employ staff directly and carry out all due diligence to protect against tax claims, allowing you to focus on running, growing and expanding your business.  These are our people so we are liable – not you.

For more information on PeopleLogik or how we can help you prepare for the changes to IR35, please contact Briars.