26 January, 2021
The planned roll out of the off-payroll tax changes to medium and large private companies were due to come into force from 6 April 2020. However, given the unexpected global pandemic that surfaced in the UK just before this date, the decision was made by the government to push this back until 6 April 2021. There have been proposals and discussions to push this back for another year due to the implications of COVID-19 that we are still facing, and the impact that this has had on businesses.
After remaining silent on this for some time, Parliament have now passed legislation to ensure that this is implemented in 2021.
IR35 rules have already been in place in the public sector since 2017 and aim to ensure that individuals who work as if they are employees, pay the same tax as employees, irrespective of what structure they are working under. As with the public sector objective, the aim of introducing the IR35 rules to the private sector is to tackle non-compliance with the existing off-payroll rules.
The onus up until now has been on the worker to determine whether they fall inside or outside of IR35. With effect from this 6 April 2021, every medium and large private sector business in the UK will become responsible for deciding the tax status of any contractor they engage via a personal service company (PSC), under the new 'off payroll working' rules.
This applies to anyone who provides their services through an intermediary such as a PSC. The responsibility will shift from the PSC to the business engaging the contractor, to determine the contractors tax status and in doing so to decide whether IR35 applies. If the contractor is an employee for tax purposes, it will be the employer's responsibility to pay PAYE and National Insurance contributions on the fees that are paid to the personal service company.
Businesses who are potentially impacted by these changes should prepare now. There are certain thresholds that need to be met in order to establish whether IR35 rules will apply to your business.
You will need to carry out an assessment to determine the contractor's status for tax purposes in order to determine whether it falls inside or outside the scope of IR35. There are of course further implications if the determination is that it falls inside the scope of IR35, in relation to employee status. The government have launched an online service to Check Employment Status for Tax (CEST). We recommend that you use the CEST tool to determine employee status for tax purposes, and also check this with us to ensure you are making the correct determination.
The changes will result in additional costs to businesses in the form of employer NICs and so you will need to assess the potential liability here. It is also important to note that if a business fails to carry out the assessment and the engagement falls within the scope of IR35, the liability to deduct PAYE and NICs remains with the business as the end-client notwithstanding the existence of a separate fee payer. In addition to this, fee payments taxed under the new rules may count when calculating the Apprenticeship Levy, which is something else to bear in mind.
There will be significant factors to consider when implementing these changes to your business, and it will carry with it significant consequences of non-compliance if not done. Therefore, businesses need to be alive to the changes and ensure that you are fully prepared for the changes that will come into effect from 6 April 2021.
We are providing a specific IR35 event on 6 May 2021 at 9.30am, if you are interested please get in touch and we can provide you with further details to attend our event.
For more information contact Amy Stokes in our Employment & HR department via email or phone on 0333 207 1157. Alternatively send any question through to Forbes Solicitors via our online Contact Form.