Are you aware of the ‘off-payroll’ rules in the new tax year?

During the last year, many of us have experienced changes in working status, whether from losing a job, redundancy, or furlough and so on. That change has bought an opportunity to try something new, for some it has been the venture into the world of self-employment.

Whether you are new to self-employment or have been working this way for a while, the UK tax legislation can be a bit of a minefield with rules frequently changing. This tax year is no different when the new IR35 off-payroll rules come into effect.

What is IR35?

IR35 is the name of the UK legislation used to identify whether a person or business is avoiding paying appropriate taxes by disguising their employment or self-employment status.

What are the new rules?

Firstly, the new off-payroll working rules apply to clients, workers (contractors) and their intermediaries. The rules can apply if a worker/contractor provides services to a client through an intermediary. An intermediary could be a limited company, or the workers own personal service company.

The off-payroll rules ensure that if you were employed providing services directly to the client, then you would pay broadly the same tax and National Insurance contributions being self-employed and supplying the same services.

Employment status is used to determine the taxes the worker and the client need to pay.

Prior to the new off-payroll rules, if a client is in the public sector, responsibility for deciding employment status resides with them. It is their duty to inform the worker of that decision. If the client is in the private sector it is the intermediary’s responsibility to determine the employment status.

The introduction of the new rules means all public sector and medium to large clients in the private sector will be responsible for deciding if the rules apply. The intermediary will only be responsible if the worker provides services to small clients in the private sector.

Application of the new rules come into effect on 6th April 2021.

What does this mean for employers?

The client or company who is in receipt of the services provided by the worker or contractor is known as the hirer, end client or engager of services. It is the responsibility of the client to determine whether the off-payroll working rules apply.

The client who engages the worker/contractor holds the liability for the employment status. This means that if HMRC ever deem that the worker should have been employed whilst carrying out services then they would be liable for the tax and NI contributions.

The easiest way to identify if the rules apply is to understand if the services the worker provides would deem them as an employee if they were contracted directly (do you have the skills in house or are they providing specialised services).

What next?

The aim is not to deter hiring in specialist skills as and when you need them, so do not be deterred from engaging people on different contracts or assignments, just be mindful that you are meeting the rules and guidelines to stay on the right side of the regulations.

It is still perfectly acceptable to work with a sole trader (one who does not operate through an intermediary), employment status would still need to be identified in the same way, although and tax liability would not sit with the client in this scenario.

To ensure you are adhering to the rules, whatever your status as a worker, client, employer, or sole trader, it is best to get in touch with HMRC to make sure you are complying with the rules and not liable for any unexpected future bills.

 

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