Off-payroll working – the perspective for individuals

23 July 2020

In April 2017, the government reformed the off-payroll working rules, colloquially referred to as IR35. Public sector organisations who use the services of contractors operating through intermediaries such as their own personal service companies (PSC’s) became responsible for determining their status for the purposes of the legislation. Where the rules do apply, the fee payer is responsible for applying PAYE/NIC and meeting the cost of employers’ NIC.

What will change from 6 April 2021?

The government have confirmed that this requirement is to be extended to engagements with medium or large-sized organisations, as defined, in the private and third sectors for payments made from 6 April 2021. The effect of the legislation is to shift responsibility for operating the off-payroll working rules from the individual’s PSC.  The organisation or business that the individual is supplying their services to, referred to as the ‘end user’, will need to determine whether or not the new rules apply. Where they do, then responsibility for applying and deducting the associated PAYE and National Insurance (NI) contributions will rest with the fee payer – either the end user or a third party if for example the services are provided via a recruitment agency.

Who will be impacted?

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?

The starting point is understanding whether you may fall within the new rules and to begin dialogue with your end user and, if applicable, any third party through which you provide your services.

You need to establish if the end user you work for is a ‘small company’ as defined in the draft legislation. If they are, then they will not need to consider the new rules, but you will have a continuing obligation to self-assess whether or not IR35 applies to a particular engagement.

Where your end user is a medium or large business, they will make the status determination based on the contractual arrangements and working practices, even if historically you may feel that you have not been caught by the off-payroll legislation.

There is some protection built into the system. The end user must provide the contractor, not only with their status decision, but also with the reasons as to why they came to that decision. The end user must then offer a status disagreement process to consider any additional facts or clarification. However, the final decision still rests with the end user; HMRC will not be involved in the process.

Should the end user make a determination, which is then changed following a review under the disagreement process, it remains unclear as to how any tax and NIC due for the initial period will be dealt with.

What happens if I disagree with the end user determination?

It is important that in challenging a determination you have strong and robust grounds for doing so. Many end users will rely on HMRC’s employment status tool CEST. However, our experience is that this tool has its limitations so we would always suggest that you take independent advice to help present your case.

What other matters do I need to consider?

Contractors may find that their end user is keen to change the contractual terms and working arrangements and to renegotiate the payment terms. In some cases, end users may require contractors to become employees. 

How can we help?

RSM can help with all aspects, including calculations of the financial impact where an arrangement is caught, advice on points to be raised as part of a status determination disagreement, input on contractual revision and general ad hoc advice on the new rules.

If you have any questions or concerns about IR35, including on how you can best prepare for change, please contact Stuart McKinnon, Susan Ball, David Williams-Richardson or Lee Knight.