Off-payroll working for individuals and personal service companies
The Government introduced new off-payroll working rules (commonly known as IR35) from 6 April 2021.
The change was estimated to impact 170,000 individuals who supplied their services through an intermediary, such as a personal service company (PSC), and who would be deemed employed if engaged directly.
How has this change impacted the supplier of these services in the private sector?
The reform has meant that the right to decide whether the off-payroll legislation applies to an engagement has been removed from the contractor and it rests with the end user, where the end user is a medium or large business that has a UK connection.
Where this is the case the end user must issue to the contractor a Status Determination Statement confirming their status decision and their reasons for that decision.
The end user of the services will have a status disagreement process and be required to respond to representations made by off-payroll workers within 45 days of receipt.
The end user will also be obliged to confirm, where requested, whether or not they qualify as a small business for a particular tax year.
What should individuals be doing?
If you are providing your services through an intermediary, such as a PSC, you need to understand whether your engagement is likely to fall with the rules.
Begin by asking a few questions:
- Is your end user a small company and/or a wholly overseas business? If so, they are outside of the rules and your PSC will need to continue to self-assess whether the off-payroll legislation applies to your contract.
- If the end user is a medium or large company, start a dialogue ideally before signing a contract to establish their attitude. Are they likely to determine that you fall within IR35?
- If the end user does conclude that you fall within IR35, are they engaging you directly or looking to use a recruitment business or umbrella to engage you? Will they look to renegotiate the contract to compensate for the additional employer's NI cost to them? If this happens, will they give you the option of becoming a direct employee?
- Do you need to wind up your existing PSC and if so when is the optimal time to do so?
- What will HMRC’s attitude be to a change in status? Whilst HMRC said that they would not use information resulting from the changes in April 2021 to open a new compliance check into a PSC unless there is reason to suspect fraud or criminal behaviour, they can still open an enquiry under existing rules.
How can RSM help?
Our specialists have a detailed knowledge of the rules and practical experience of implementing changes.
We have a multi-disciplinary team of experts who can provide advice and help, including:
- reviewing and advising on existing structure;
- performing a status check to establish whether IR35 applies to the contract;
- establishing the status of the end user;
- calculating the financial impact of any changes;
- assisting with the appeals process; and
- negotiating contract changes on your behalf.
For further information contact Gary Heynes.