With the new off-payroll rules due to come into effect on 6 April 2021 after being delayed due to the pandemic, businesses and contractors must get a good understanding of the rules before the changes come in to place.
Off-payroll rules – what you need to know
From 6 April 2021, agencies and clients will now have to assess contractors to see if they fall under the new rules (whereas before the responsibility fell on the contractor). The new rules depend on the type of client you are working for:
- If you provide services to an organisation in the public sector, the client will already be responsible for deciding your employment status;
- If you provide services to a medium-large sized business in the non-public sector, the client will now be responsible for deciding your employment status;
- If you provide services to a small non-public organisation, you will remain responsible for deciding your employment status within off-payroll rules.
None of these changes applies if you are self-employed – they are only for limited companies or contractors that work through another intermediary.
When does off-payroll tax (IR35) Apply?
HMRC says that the rules apply if contractors “would be an employee if there was not an intermediary”. In most cases, the intermediary is the contractor’s limited company. You can use HMRC’s tool to help determine if you fall under IR35.
How could the changes affect you?
As a contractor, this will affect how much income tax and National Insurance you pay. If your client deems that you fall under the rules, they will give you a “status determination statement” which will explain their decision. If you fall within the off-payroll rule, your client or agency will deduct the necessary, tax and National Insurance before they pay you.
You will still need to submit a tax return – the tax already paid will be shown on the tax return, so this will not be deducted twice. If your client decides that the off-payroll rules do not apply to you, then you will continue to receive gross payments and you will be responsible for the tax obligations for that income.
As a business hiring contractors, you should communicate with any umbrella companies, agencies and any other organisations that are providing labour to discuss any changes that may need to be made. It is important to review any current and future contractors and have an assessment in place. It would be a good idea to set up a process to monitor ongoing compliance.
You will also need to set up a status disagreement process for any client that could disagree with the status that you have given them. You can find further guidance on how to set this up on the HMRC website.
If your workers fall within the off-payroll rules, you will be responsible for deducting tax and National Insurance and you will need to deduct this before paying them.
What if I disagree with the client about my status?
If you do not agree with your client that you fall into the off-payroll rules, you can raise your concerns through your client’s status disagreement process and explain why you disagree. As of 6 April 2021, clients are required to introduce a process where you can raise your concerns. The client then has 45 days from the date of receiving the disagreement to respond.
There are multiple tools available and resources you can use if you still need guidance:
If you have any questions or issues surrounding IR35 or off-payroll tax, you should seek professional advice. Our friendly team are experienced in all things IR35 and will be happy to help, so do not hesitate to get in touch.