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Changes to off-payroll working rules (IR35) in April 2021

Created on  | Last modified on 

Summary

HMRC's off-payroll working (IR35) are designed to ensure that contractors working through an intermediary, such as 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 (PAYE) and national insurance (NI) as if they were employed.

Description

What's changing in April 2021?

Since 2017, in the public sector it has been the responsibility of the employer to determine if a contractor falls under HMRC's off-payroll working rules. In the private sector, it has been down to the contractors themselves to check if the rules apply to them.

As a result of legislation due to take effect from 6 April 2021, medium and large sized organisations in the private and third sectors will come in line with the public sector. This means those employers will be responsible for:

  • Identifying contractors who fall under the off-payroll working rules, these are classed as deemed employees. It's expected this will result in more contractors being identified as deemed employees.
  • Issuing Status Determination Statements to confirm the deemed status of workers.
  • Deducting tax and national insurance (NI) through the payroll from amounts paid to deemed employees and paying Employer's NI for those workers.

You can use the HMRC employment status for tax checker (CEST) tool to help you make these determinations.

This change doesn't apply to employers who are defined as small organisations within the Companies Act 2006.

You can find out more by visiting the HMRC - Off-payroll working (IR35) web page.

What does this mean for you?

If you're a medium or large-sized organisation in the private or third sector, HMRC advise that you take the following steps to prepare:

  • Identify any individuals in your workforce who are currently supplying their services through an intermediary.
  • Determine if any contracts that extend beyond April 2021 fall under the off-payroll working rules.
  • Start talking to your contractors about whether the off-payroll rules apply to their role.
  • Prepare processes for dealing with future contracts. For example, who will decide if the rules apply and how contractor payments will be handled.

To help you determine if you're affected by the rules, take a look at our interactive guide. You can find out more by visiting the HMRC - Prepare for changes to the off-payroll working rules (IR35) web page.

If you use Sage 50cloud Accounts, Sage 500 or TASBooks, our quick guides explain how you can record deductions for off payroll working in your accounts: