HMRC (IR35) Off-Payroll Working Rules from 6th April 2020

“The changes to the off-payroll rules were due to come into effect on 6 April 2020. This has now been delayed until April 2021 because of the spread of the coronavirus (COVID-19) pandemic. The delay is to help businesses and individuals deal with the economic impact of COVID-19.

The delay to the introduction of the changes is not a cancellation”

For further information click on https://www.gov.uk/topic/business-tax/ir35

The off-payroll working rules

The off-payroll working rules can apply if a worker (sometimes known as a contractor) provides their services through an intermediary.

An intermediary will usually be the worker’s own personal service company, but could also be any of the following:

  • a partnership
  • a managed service company
  • an individual

The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees.

These rules are sometimes known as ‘IR35’.

Who the rules apply to

You may be affected by these rules if you are:

  • a worker who provides their services through their intermediary
  • a client who receives services from a worker through their intermediary
  • an agency providing workers’ services through their intermediary

If the rules apply, tax and National Insurance contributions must be deducted from fees and paid to HMRC

Deciding Employment Status

From this date, all medium and large sized end clients will be responsible for deciding the employment status of workers. Use CEST Tool to (Check Employment Status for Tax).

Who the rules apply to:

The rules apply to all private sector companies that meet 2 or more of the following conditions:

  • you have an annual turnover of more than £10.2 million
  • you have a balance sheet total of more than £5.1 million
  • you have more than 50 employees

Balance sheet total means the total amounts shown as assets in the company’s balance sheet before deducting any liabilities.

This is in line with the small companies’ regime.

Simplified test

A simplified test also applies to some clients and considers annual turnover. You must apply the rules if you have an annual turnover of more than £10.2 million and are not:

  • a company
  • a limited liability partnership
  • an unregistered company
  • an overseas company

There are also rules which cover connected and associated companies. If the parent of a group is medium or large, their subsidiaries will also have to apply the off-payroll working rules.

When you need to start applying the rules

Private sector clients

If you meet the conditions above you must start applying the rules when the changes come into force on 6 April 2020.

If you use the simplified test to determine your size, you must apply the rules from the start of the tax year following the end of the calendar year when you met the conditions.

If you do not use the simplified test and do not meet the conditions on 6 April 2020, your circumstances may later change. If you then meet the conditions for 2 consecutive years, the date you need to apply the rules will be different. You must apply the rules from the start of the tax year following the end of the filing period for the second financial year when you met the conditions.

What you need to do as a client

You’ll need to decide the employment status of a worker, you must do this for every contract you agree with an agency or worker. You’ll need to:

  • pass your determination and the reasons for the determination to the worker and the person or organisation you contract with
  • make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid
  • have processes in place to deal with any disagreements that arise from your determination

If you are also the fee-payer and the off-payroll working rules apply, you will need to deduct and pay tax and National Insurance contributions to HMRC.

Small-sized clients in the private sector will not have to decide the employment status of their workers. This will remain the responsibility of the worker’s intermediary.

Click here to download the IR35 TEMPLATE STATUS

Click here to view STATUS DETERMINATION STATEMENT (SDS) (PDF)

Taking reasonable care when making a determination

You must take reasonable care when you make a determination about the employment status of a worker.

Failure to do so will result in the worker’s tax and National Insurance contributions becoming your responsibility.

Who to tell about your determination

From 6 April 2021, you must provide the worker and the agency, or other organisation you contract with, your determination. Do this whether your determination shows that the off-payroll working rules will apply or not.

You must provide reasons for your determination.

You will hold the liability for tax and National Insurance contributions until you tell the worker, and the person you contract with, of your determination and the reasons for it.

A status determination statement issued before 6 April 2021 is valid under the new rules, if it contains the reasons for the conclusion reached. If the working practices of the engagement change or you negotiate a new contract with the worker, you need to make sure that you re-check the rules to see if they still apply.

What to do if a worker or deemed employer disagrees with your determination

A worker or the agency paying the worker’s intermediary may disagree with the employment status determination you reached.

If this happens you will need to:

  • consider the reasons for disagreeing given to you by the worker or agency paying their intermediary
  • decide whether to maintain the determination if you feel it is correct and give reasons why – or provide a new determination because you feel it was wrong
  • keep a record of your determinations and the reasons for them, as well as records of representations made to you

You must provide a response within 45 days of receiving notification that the worker or agency disagrees with your employment status determination. During this time you should continue to apply the rules in line with your original determination.

Tell the worker if the determination has not changed.

Tell the fee-payer and the worker if the determination has changed.

Failure to respond within 45 days will result in the worker’s tax and National Insurance contributions becoming your responsibility.

Click her to view the STATUS DISPUTE TEMPLATE

Please visit HMRC site for further information.

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