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Changes to Off-Payroll Working IR35 April 2021

Jennie

The government has announced that the extension of IR35 to medium and large companies in the private sector is being postponed by a year, to 6 April 2021.

IR35 updates for the Private Sector will come into force on the 6 April 2021. It is important to understand these changes and how they affect your business as they are applied differently. You need to prepare for changes if you are receiving services from a ‘worker’ through their intermediary (often a Limited Company they control). 

From this date, all public authorities and medium and large-sized organisations will be responsible for deciding the employment status of workers.  The responsibility for deciding whether the off-payroll working rule (often known as IR35) applies or not, will move to the company receiving the individual's services.

Jennie has summarised what it means for you and your organisation, what impact it will have and what steps you need to do to prepare for it.

Is your organisation exempt from IR35?

The first thing to consider is if your organisation is exempt from the legislation. An exception applies to small organisations. Small companies must meet at least two of the following conditions to be exempt from the legislation:

  • Annual turnover of 10.2m or less
  • Balance sheet total of 5.1m or less
  • 50 employees or less

Status Determination Statement (SDS) 

A status Determination statement (SDS) will decide whether someone is inside IR35 or outside.  The government have created a tool which will respond with 3 status decisions which are

  • Off-Payroll rules apply (IR35)
  • Unable to make a determination
  • Off-payroll rules (IR35) do not apply

The government tool can be accessed by going to Check employment status for tax

As long as you complete the questionnaire honestly and thoroughly HMRC will back the decision you are given. 

Contractors

Start talking to your contractors about whether these changes apply to them or not. All contractors need their own SDS, which must be printed or saved against their name for evidence of the decision. Do not blanket apply the same to everyone as there may be variations in circumstances.

If the SDS is deemed inside, the income paid to the intermediary will be subject to PAYE and NICs deductions. If the SDS is deemed outside, Gross payments are made as reflective of business to business relationships where contractors provide an invoice.

Under the old application rules:

Personal service companies/Agency completes determination and makes deductions for tax and NICS​

Under the New application rules:

  • Client of the worker to complete status determination
  • Fee-Payer Client or agency that pays the worker makes deductions for Tax or NICs
  • Old rules still applicable to small businesses (as above)

If a contractor is deemed as an employee for tax and NIC purposes, it doesn’t necessarily mean they have deemed to be an employee under employment legislation. 

If you have been incorrectly deducting tax and NICs previously, as long as you are correctly deducting tax and NIC’s from 6th April 2021 HMRC have confirmed it is not applied retrospectively.

You can read more information on gov.uk. If you are in any doubt about what you need to do as a result of reading this article, please feel free to contact us for advice and support.  If you’re not already a client, we would welcome an opportunity to discuss how you could benefit from Park City’s support and advice. Request a conversation. 

 

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