The extension to the off-payroll working rules finally comes into effect from 6 April 2021, having been delayed by a year as a result of the COVID-19 pandemic. The rules were originally introduced from 6 April 2017 where a worker’s services were provided to a public sector body via an intermediary. The extension from 6 April 2021 brings engagements where the end client is a medium or large private sector organisation within their scope.
The extent to which the extension to the rules will affect you depends on whether you engage workers who provide their services through an intermediary or whether you provide services in this way, and also whether you or your end client is a medium or large private sector organisation.
If you engage workers who provide their services to you through an intermediary, such as their own limited or personal service company, the extent to which you need to consider the off-payroll working rules depends on whether you are:
- A medium or large private sector organisation;
- A small organisation; or
- A public sector body.
The off-payroll rules apply from 6 April 2021 to medium and large private sector organisations that engage workers who provide their services through intermediaries, such as a personal service company. If you are a private sector organisation engaging staff in this way, it is important that you know what size your organisation is for these purposes. You will be a medium or large organisation if at least two of the following apply:
- Annual turnover is more than £10.2 million;
- The balance sheet total is more than £5.1 million;
- You have more than 50 employees.
If you fall within this category, for each engagement that is live on or after 6 April 2021 where you engage a worker who provides their services through an intermediary, you must:
- Determine whether the worker would be an employee if they provided their services to you directly; and
- Advise the worker of their status by giving the worker, and all other parties in the chain, a Status Determination Statement.
HMRC’s Check Employment Status for Tax (CEST) tool can be used to determine the worker’s status.
If the decision is that the worker would be an employee if they provided their services to you directly, rather than via their personal service company, the off-payroll working rules apply. This means that you (or the fee-payer where this is a third party) must calculate the deemed direct payment (broadly, the amount invoiced by the worker’s intermediary, less VAT and the cost of any recharged materials and employment expenses, where applicable) and deduct tax and National Insurance when paying the worker’s intermediary.
You also need to report the payment and deductions to HMRC under Real Time Information (making it clear that the worker is an off-payroll worker), and pay the deductions, together with employer’s National Insurance, over to HMRC. You must also take the payment into account when working out your apprenticeship levy payments.
The requirement to pay employer’s National Insurance is a new cost, and you should budget for this.
The off-payroll rules do not apply to small private sector organisations. Consequently, if you are a small private sector organisation and you engage workers who provide their services through a personal service company or other intermediary, from 6 April 2021, as now, you continue to pay the invoice from the worker’s intermediary gross, without deducting tax and National Insurance. You do not need to carry out a status determination either.
The off-payroll rules have applied to public sector bodies engaging staff providing their services through an intermediary since 6 April 2017. From 6 April 2021, the rules continue to apply as now (subject to some minor tweaks to facilitate their application to the private sector). The public sector body engaging the worker’s intermediary must continue to assess whether the engagement falls within the off-payroll working rules, and deduct tax and National Insurance from payments to the worker’s intermediary where it does.
Prior to 6 April 2021, if you are a worker providing your services to an end client in the private sector through a personal service company or other intermediary, you need to consider the IR35 rules.
From 6 April 2021, this may change depending on whether the end client is a medium or large private sector organisation. Remember to check the size of the organisation when agreeing engagements that are live on or after 6 April 2021.
The off-payroll rules apply in place of the IR35 rules from 6 April 2021 where the end client is a medium or large private sector organisation. The end client will be responsible for deciding whether the off-payroll working rules apply. Under the rules, they must determine your status and give you a status determination statement.
If you do not agree with the status determination, you should tell the end client this, and also the reasons why you disagree. The end client must reconsider the determination in light of this. Within 45 days, the end client must either issue a new determination or confirm that the original determination stands.
If the off-payroll working rules apply, which will be the case if the nature of the engagement is such that you would be an employee of the end client if you supplied your services to them directly, rather than through your personal service company, the fee payer will deduct tax and National Insurance from payments that they make to your personal service company. This will have a cash flow implication as the amount you receive will be net of tax and National Insurance; prior to 6 April 2021, payments are made gross. Remember to allow for this.
You will receive credit for the tax and National Insurance deducted from payments made to your intermediary against the tax and National Insurance that you owe on payments that your personal service company makes to you.
Your personal service company does not need to consider the IR35 rules.
The off-payroll rules do not apply where the end client is a small private sector organisation. Therefore, if you provide your services to a small private sector organisation via an intermediary on or after 6 April 2021, you must continue to consider the IR35 rules.
This means that your personal service company must decide whether you would be an employee of the end client if you provided your services directly to that end client. If this is the case, your personal service company must calculate the deemed employment payment on 5 April at the end of the tax year, and account for tax and National Insurance on that payment to HMRC.
The off-payroll rules have applied since 6 April 2017 where the end client is a public sector organisation, and continue to apply, as now, from 6 April 2021 and beyond. You do not need to do anything different.
Although the off-payroll working rules contain sanctions to ensure compliance, HMRC have stated that they will apply a light touch and will not impose late or inaccuracy penalties on medium and large organisations until 6 April 2022. This will give them a year to get to grips with the rules.
Talk to us about what the new rules mean for you, and what you need to do to prepare.