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Sage 50cloud Payroll and off-payroll working rules (IR35)

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Summary

This guide explains how to account for off-payroll working rules (IR35) when processing in Sage 50cloud Payroll.

Description

Off-payroll working (IR35) was introduced in 2000 to ensure that people working through a Personal Service Company (PSC), who would have been regarded as employees if they were directly engaged by the client, pay broadly the same tax and national insurance (NI) as if they were employed.

From 6 April 2017, in the public sector, if the authority is directly engaging the worker’s PSC, they're required to deduct the relevant income tax and NICs before they pay the employee.

If the employee is engaged through an agency, the public authority pass on their decision and the agency paying the worker’s PSC is required to deduct the relevant income tax and NICs before paying the employee. The party paying the worker’s PSC is responsible for paying employer NICs for the work.

There are some important changes to the off-payroll working rules (IR35) from 6 April 2021.

 NOTE: Don't forget, the pay for deemed employees is not eligible for employment allowance.

What's changing?

Autumn Budget 2018 announced the extension of off-payroll working rules to medium and large-sized organisations in the private and third sectors from April 2021. The extension doesn't apply to small organisations.

To qualify as a small organisation:

  • A small unincorporated company (subject to the Companies Act 2006) must meet two of the following criteria:
    • Fewer than 50 employees.
    • Annual turnover of less than £10.2m.
    • Total balance sheet assets of less than £5.1m.
  • A small unincorporated organisation must have an annual turnover of less than £10.2m.
What do I need to do?

If an employee is assessed to be inside of the IR35 rules then they're classed as a deemed employee. This means that although tax and NICs should be deducted, they're not entitled to any other employee benefits, such as statutory pay, pension or holidays.

When your process date is set to on or after 6 April 2021 in Sage 50cloud Payroll, you can set the employment type as Deemed when you create a new employee. When you set the employee to deemed, the full payment submission (FPS) includes the relevant flag to notify HMRC that they're a deemed employee.

CAUTION: When you create the new employee, to avoid them being picked up in e-Banking, we recommend setting their Payment Method to Cash. 

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