Off-payroll working back on the horizon
The extension to the off-payroll working rules was put on hold as a result of the COVID-19 pandemic. However, the legislation has now been implemented and the new rules will come into effect from April 2021 – one year later than originally planned. As the Coronavirus Job Retention Scheme draws to a close and businesses assess their future staffing requirements, the impact of the off-payroll working rules cannot be overlooked.
The extended off-payroll working rules only apply to ‘medium’ and ‘large’ private sector organisations. The definitions are taken from the Companies Act 2006.
An organisation is medium or large for these purposes if at least two of the following apply:
- annual turnover of more than £10.2 million;
- balance sheet total of more than £5.1 million;
- more than 50 employees.
A simplified turnover test applies to organisations which are not a company, a limited liability partnership, an unregistered company or an overseas company. Such organisations are within the rules if their turnover is more than £10.2 million.
Obligations under the rules
The new rules impose a number of obligations on medium and large private sector organisations that engage workers who provide their services through a personal service company or other intermediary.
If you fall within this category, from 6 April 2021, you must determine whether the off-payroll working rules apply. This is the case where the worker would be an employee if they provided their services to you directly, rather than through an intermediary. You can use HMRC’s Check Employment Status for Tax (CEST) tool to check a worker’s status.
Once you have reached your determination, you must give a copy of it to the worker, and to any other parties in the chain. You must also provide them with the reasons for reaching the decision that you reached. Giving the worker a copy of the CEST output will tick this box. You must also keep a copy of the determination and the reasons for reaching it for your records.
If your worker does not agree with the determination, you must consider their reasons for this. If, after reconsideration, you feel that the original determination is correct, you must let the worker know. If, on reflection, you feel that the original determination was incorrect, you must issue a new determination.
It is important that you make a determination of the worker’s status and give it to the worker. If you fail to make a determination, you will be liable for tax and National Insurance on payments made to the worker’s intermediary, even if the engagement is one that would fall outside the off-payroll working rules.
Off-payroll working rules apply
If the determination is that the worker would be an employee if they provide their services to you directly, the off-payroll working rules apply. Where this is the case, you (or the fee payer if this is different) must:
- calculate the deemed direct payment to account for employment taxes and National Insurance contributions associated with the contract;
- deduct income tax and employee’s National Insurance contributions from the payment to the worker’s intermediary;
- pay employer’s National Insurance contributions;
- report the payments and associated tax and National Insurance to HMRC under real time information; and
- apply the apprenticeship levy and make any payments necessary.
Off-payroll working rules do not apply
If the determination is that the off-payroll working rules do not apply, you can continue to make payments to the worker’s intermediary gross, without deducting tax and National Insurance.
Small private sector organisations
The extended off-payroll working rules do not apply to small private sector organisations. Consequently, if you are an organisation that is categorised as small, and you engage workers who provide their services via a personal service company, you do not need undertake a status determination. Instead, you continue to pay the worker’s intermediary gross without deducting tax and National Insurance.
In this situation, the IR35 rules continue to apply; the worker’s intermediary is responsible for deciding whether the rules apply, calculating the deemed payment and accounting for tax and National Insurance if they do.
Speak to us to find out what you need to do to ensure that you are ready for the extended rules when they come into force in April 2021.