The changes to off payroll working rules (IR35) were delayed from 6 April 2020 to 6 April 2021 in light of the global coronavirus pandemic. Many businesses had prepared for these rules to come into effect for the 2020/21 tax year, however for some organisations the lack of guidance and absence of final legislation meant that preparations were often rushed or under-resourced.
The delay to 6 April 2021 has in theory given businesses some much appreciated time to fully assess their contingent workforce. The current global pandemic has however led to an understandable focus on immediate issues such as applying for government support and the continuing developments in the UK leaving the EU.
With time for preparations now limited we have summarised in this article some key areas businesses should be looking at ahead of 6 April 2021.
Change in business requirements
The global pandemic has triggered a change for many businesses in their way of working, and this may impact the need for contingent workers in their workforce. Decisions made in the period up to April 2020 may no longer be suitable. Many employers had taken the decision to stop all off payroll engagements to reduce the administration of operating under the off payroll legislation. However, in the current unpredictable economic environment, it may not be viable for businesses to engage with workers as employees on a long term basis or have the headcount available to do so.
Off payroll engagements may provide businesses with the flexibility needed to weather the global pandemic. Businesses should be aware that any engagements with qualifying intermediaries entered into now that are likely to be in place beyond 6 April 2021 will need to be reviewed under the new legislation.
Businesses engaging with agencies to source temporary resource will need to consider their obligations under the off payroll working legislation. As the “end user” in the off payroll supply chain, the business will need to liaise with agencies and identify the relevant engagements under the off payroll legislation, issue status determination statements and have a clear status disagreement process. These processes are required even where the off payroll worker is provided via an agency or other intermediary unless the agency can confirm that the worker is already subject to PAYE/NIC by them under separate rules.
For many end user businesses, the benefit of working with agencies is that any payroll obligations (ie operating PAYE/NIC on the relevant engagements) will sit with the fee-payer, which is likely to be the agency that they contract with or another party further down the labour supply chain.
Whilst using an agency will reduce some of the administrative burden, businesses should be aware of the debt transfer provisions within the new legislation which mean that any failure to operate PAYE on the affected engagements could lead to the liability being passed up the chain to the first agency or ultimately to the business as the end user. Businesses should review their engagements with agencies to ensure that both parties are aware of their obligations from 6 April 2021.
Coronavirus has shown many businesses that employees can effectively work remotely. Businesses may look to engage with contractors globally where there is no business requirement for the work to be completed onsite. Likewise, businesses may not be aware of where their contractors are working. Engagements with overseas off payroll workers need to be reviewed to establish if the worker is UK resident so care should be taken where these types of arrangements may become more popular. It is also necessary to consider if the arrangement with a contractor working overseas triggers any issues in the overseas country.
The changes from April 2021 are for off payroll workers engaged via an intermediary, which is most commonly a personal service company (PSC). Businesses should also take this opportunity to review their self-employed contractors, ie those working as a sole trader. These engagements are already subject to specific rules which require end users to operate PAYE on payments where a contractor engagement is found to have the features of employment. Reviewing these engagements alongside the IR35 preparations will help businesses to have a clear, consistent approach to off payroll engagements as a whole.
The legislation from April 2021 requires businesses to take reasonable care when operating these rules. Reasonable care is not clearly defined however HMRC will expect businesses to have the relevant expertise to review and determine the status of off payroll engagements. Businesses should ensure that the key stakeholders within the organisation are aware of the new legislation and are appropriately trained, and that end to end processes and procedures are documented as part of their internal compliance processes.
HMRC has confirmed that a ‘light touch’ penalty approach will be applied for the first 12 months of the implementation for those organisations in the private sector trying their best to operate under the new legislation. Clearly documenting your internal policies and processes, including internal training requirements, will help where organisations are challenged by HMRC on their operation of the rules.