The Government confirmed that the off-payroll working rules (IR35) will be reformed from April 2021. It’s important not to underestimate the impact of these changes and to start preparing for them now.
The impact of the changes will vary for the following:
- private sector businesses;
- recruitment sector businesses;
- public sector organisations;
- real estate and construction businesses; and
- individuals providing services via Personal Service Companies (PSCs).
The Government has confirmed that the off-payroll working rules first introduced to the public sector in 2017 are being amended and extended to the private sector from April 2021 (a change from the original date of 6th April 2020).
Who is likely to be affected?
- Around 60,000 engager organisations, predominantly medium and large-sized businesses outside the public sector that engage with individuals through intermediaries such as personal service companies (PSCs).
- Public sector organisations who will be affected by changes designed to improve the operation of the rules, for example around the employment status disagreement process.
- Recruitment agencies and other intermediaries, around 20,000 of whom supply staff through PSCs.
- Individuals who supply their services through an intermediary, such as a PSC, and who would be deemed employed if engaged directly.
Overview of the measure
The off-payroll working rules (IR35) have been in place since 2000. They were designed to make sure that an individual who works like an employee, but through their own intermediary such as a limited company, pays broadly the same Income Tax and National Insurance contributions as other employees. The rules do not apply to the self-employed who should be subject to separate status checks.
The proposed legislation brings medium or large-sized organisations in the private and third sectors (excluding those that are ‘wholly overseas’) within the scope of the rules introduced for the public sector in April 2017. It shifts the responsibility for deciding whether the rules apply away from the individual’s PSC, to the organisation that is the end user of the worker’s service. This includes responsibility for deciding whether the rules should apply. Responsibility for deducting the associated employment taxes and National Insurance contributions will rest with the entity that is paying the workers PSC.
An estimated 1.5m small organisations are exempt.
Small company exemption
In the private sector the new rules will only apply to medium and large businesses that have a UK connection for a tax year that are the end user of the worker’s services and to the fee payer, if different, for example a recruitment agency.
Where the end user of the worker’s services is a small business, the responsibility for assessing the arrangements, and applying IR35, will remain with the intermediary such as the PSC.
A small business will be defined by the Companies Act 2006, this is broadly a business that has two or more of the following features:
- a turnover of £10.2m or less;
- a balance sheet total of £5.1m or less; and/or
- 50 employees or less.
Special rules apply for joint ventures, subsidiaries and connected persons
End user’s will be required to provide to a person (likely to be a PSC or fee payer) on request a statement as to whether in their opinion they qualify as small for the tax year specified in the request generally within 45 days of receipt.