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The changes of IR35 (Off-payrolling)

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Do you use freelancers or subcontractors in your business? if so, then please read on as the changes that came in from April 2021 for IR35 (off-payroll) may affect your business.

What do the new rules mean and how am I affected?
IR35, otherwise known as Off-Payroll or Intermediaries legislation, was originally introduced in 2000 to target arrangements that were believed to be avoiding tax and National Insurance.   It was primarily aimed at situations where a worker offered their services through an intermediary such as their personal service company (PSC) but where the worker would have been an employee if that intermediary were not in place.

The change that came in from 6 April 2021 was a shift in the responsibility for deciding whether IR35 applies from the PSC to you, their end client, and with it the potential liability for getting it wrong.  This mirrored changes that were introduced for the public sector a number of years ago.

So we will now look through what the changes may mean for you.

Deciding if the new rules apply?
The change affects all businesses, except those in the private sector which are classified as “small”  – this is where two or more of the following apply:

  • Has a turnover of less than £10.2 million;
  • Has a balance sheet of less than £5.1 million; or
  • Has less than 51 employees.

Action that needs to be taken
For every freelancer or subcontractor that you pay through their PSC or any other intermediary, you need to consider their employment status as a matter of urgency.

HMRC recommend the use of their online CEST (Check of Employment Status for Tax) tool:

The outcome needs to be communicated with the worker by the issue of a Status Determination Statement (SDS). The SDS must also include details on how the decision was reached and can be appealed.

The off-payroll working rules apply on a contract-by-contract basis. A worker may have some contracts which fall within the off-payroll working rules and some which do not.

If the off-payroll working rules apply
If it is determined that the worker would be an employee were it not for their PSC, then you must effectively tax them as an employee.  This includes:

  • Putting the invoice payment through your payroll and deducting basic rate tax and employee’s National Insurance Contributions from the gross payment.
  • Paying employer’s National Insurance Contributions on the gross amount of the invoice, (less materials and VAT)
  • Include these payments in your payroll assessment for the apprenticeship levy
  • Give payslips for each payment, a P60 and a P45 when the contract is over

If you have engaged the PSC through an agency, you are still responsible for deciding if the rules apply and you must tell the agency who will have to make the deductions and pay the employer’s National Insurance Contributions.

If you have any questions please contact your usual BHP contact.