Changes to off-payroll working - IR35

This article was updated on 31 July 2020 to reflect confirmation that IR35 rule changes will take effect from April 2021.

The Government has 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:

Overview of the IR35 changes

These changes were originally due to come in from 6 April 2020, but a deferral was announced to 6 April 2021 in response to the ongoing spread of coronavirus, to help businesses and individuals.

The impact of these changes should not be underestimated, and sufficient preparation will be crucial.  As a result of Covid-19 many businesses are re assessing their resource requirements and this may mean more demand for the flexibility of off-payroll workers. 

Who is likely to be affected?

  1. 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). 
  2. 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.
  3. Recruitment agencies and other intermediaries, around 20,000 of whom supply staff through PSCs.
  4. 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 current 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 reform, which is based on the existing public sector IR35 rules, places the burden for assessing whether IR35 applies onto medium and large private sector end users of the worker’s services for all payments made by businesses in the private sector from 6 April 2021.

Where it is concluded by the end user that IR35 applies, the fee payer (which maybe the end user or a recruitment agency or other third party paying the intermediary) will become responsible for accounting for and paying the related tax and NIC, including the additional cost of the employer’s NIC, to HMRC.

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 are the end user of the worker's services who have a UK connection for a tax year 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.

IR35 changes workforce structuring strategy – wise up to employment legal rights too. It’s a joint gig!

23 March 2020

For the purposes of the off-payroll working rules, one of the key questions is whether the engaged individual would (for tax or NICs purposes) have been an employee of the client if they had been working directly for it rather than engaged through an intermediary.

Employer NIC deductions from contractors under IR35

23 July 2020

For those deemed as employees under IR35 off-payroll rules, the fee-payer is liable for the employer’s National Insurance Contributions (NIC) (13.8%) and the Apprenticeship Levy (0.5%) in addition to the fee for the work.

Can you renegotiate contracts to include deductions for employer’s NIC?
Off payroll workers – the liability transfer rules

24 March 2020

The transfer of liability provisions will form part of the new IR35 rules from 6 April 2021. Under the new IR35 rules, the liability for the tax, NIC, and (potentially) Apprenticeship Levy due under PAYE where IR35 applies, will pass down the labour supply chain as each party satisfies its obligations.

HMRC can potentially transfer those liabilities to an agency at the top of the labour supply chain or to the end-client, where there is non-compliance further down the labour supply chain and it is not possible for HMRC to collect the amounts due from the offending party.

Who has liability under the new rules? How will these rules be applied? 
Off payroll working – status determinations and the status disagreement process from April 2021

24 March 2020

The draft legislation also confirms that end users of services via intermediaries, such as Personal Service Companies (PSC), will be required to make status determinations and pass these to both the worker and the fee payer.

Also, the end user client will be required to set up and lead a status disagreement process, which will increase the administrative burden for businesses.

What is the draft legislation regarding statusdeterminations and the status disagreement process?
Off-payroll working – the perspective for individuals

23 July 2020

The Government believes the legislative changes will impact 170,000 individuals working through their own intermediary, such as a PSC. For these individuals, the deduction of tax and NI at source will have cash flow implications and, therefore, needs to be planned for.

What do individuals need to consider? 
IR35 and Insight4GRC

20 March 2020

In response to the Government’s extension to off payroll arrangements, we have used Insight4GRC to create a cost effective, easy to use technology solution.

IR35 - are there impacts on R&D relief?

25 March 2020

The impact on IR35 has been felt across the tax landscape and R&D tax relief is no different. Companies making R&D claims will need to consider how the changes could affect their eligibility for R&D expenditure credit.