The ‘Off-Payroll Reforms’ for the Private Sector were supposed to begin in April 2020. However, the impact of coronavirus meant that the Government delayed its start until 6 April 2021 – meaning there is only a matter of weeks left to prepare.
HM Revenue and Customs (HMRC) designed the off-payroll working rules, also known as IR35, to examine whether contractors are classed as employees or self-employed to ensure they pay the right amount of tax and National Insurance Contributions (NICS).
Despite the year-long delay, many firms are still not adequately prepared for IR35 to begin, with nearly 50 per cent of contractors still waiting for their engagers to assess them for IR35, according to a recent study of 3,300 freelancers.
What are the main changes to IR35, and how will this affect my business?
From 6 April, contractors working via an intermediary, such as a Personal Service Company (PSC), will no longer be responsible for working out their employment status if they work for medium and large-sized businesses.
Firms that are classed under these categories and are the ‘end-users’ will need to do the following:
- Assess its size and notify the contractor that it is a large or medium-sized client.
- Assess the contractor’s employment status and inform the fee payer and worker via a Status Determination Statement (SDS).
- The fee payer, who is normally the end-client or an agency, needs to deduct PAYE and NICs from the fee paid to the contractor.
Contractors that work for smaller businesses are still responsible for working out their employment status.
A business will be small if it satisfies two or more of the following requirements:
- It has an annual turnover not exceeding £10.2m
- It has a balance sheet total not more than £5.1m
It had an average of no more than 50 employees for the company’s financial year. Additionally, from 6 April, contractors will now require the reason behind an SDS, and can appeal against a decision if they think it is inaccurate.
Contractors should be aware that this change to the IR35 rules means that they may be required to pay more tax and National Insurance Contributions through an end-users PAYE process.
It is important that they assess how this will affect them and make necessary changes to their fee structure.
Businesses should also be aware that with many contractors looking to increase their fees to reflect these changes they may need to carefully monitor their employment costs.
Budget 2021: were any IR35 rules affected?
Currently, there are no changes to the IR35 as a result of the March 2021 Budget.
After contacting HMRC, a leading UK IR35 expert, who used to work for HMRC himself, revealed that the department “fully expect[s] the Off-Payroll (OPR) to take effect.
“I also received an email from HMRC confirming the work the department is undertaking to help businesses prepare for the changes before implementation on 6 April.”
With the start date for the ‘Off-Payroll Reforms’ for the Private Sector nearing quickly, your business needs to prepare to avoid any possible fines.