Many businesses would have heard of the original off-payroll working rules which were introduced to ensure that individuals who work like an employee, but through an intermediary such as a company, pays similar taxes to other employees. However, changes were introduced in April 2021 which affects more businesses than before.
What were the original off-payroll working rules?
The original off-payroll working rules, known as IR35, mainly affected the public sector and businesses that contracted within that industry. HMRC would view that if by ignoring the intermediary (in most cases the individual’s company), the individual could be viewed as an employee of the employer, then PAYE and National Insurance can be assessed on the individual. This financial risk laid with the individual (i.e. the employee) and not the employer.
The off-payroll working rules, changed on 6 April 2021 to tackle non-compliance by shifting the responsibility for determining the tax status of individuals engaged through their own limited companies to the employer using their services.
These changes only affect medium or large organisations and a small company is one that meets two of the following criteria:
- Has turnover of not more than £10.2m;
- A Balance Sheet total of not more than £5.1m;
- Average number of employees of not more than 50.
What does this mean for affected businesses?
If you are a contractor working for a medium or large client company, then you need to be aware of how you are going to be assessed for working arrangements and whether how you operate falls foul of the off-payroll working arrangements.
If you are a contractor working for a small client company, then you should not be affected by the off-payroll rules. The only thing to consider is if you are genuinely in business or actually an employee.
For small client companies, the responsibility of determining whether an individual is caught under the off-payroll rules remains with the contractor’s intermediary. However, you will need to confirm your size if asked by the person or organisation you contract with, or the contractor.
For medium or large client companies engaging contractors, a detailed assessment of your contractors will need to be carried out and a status determination statement is a requirement under the new off-payroll working arrangement rules. This statement will state whether or not the employment status test indicates that the worker is to be regarded as an employee for tax purposes, and the reasons why this assessment has been made. If this statement is not provided to the contractor, then the client company will remain liable for any tax and National Insurance that would arise.
What help is there with assessing employees?
The government has provided an online tool – “Check Employment Status for Tax (CEST)” which will allow the business to run through a series of questions to assess whether their worker should be classed as an off-payroll employee or not. This tool can also be used by the worker to make their own assessment of whether they are actually classed as in business.
In the majority of cases, determining the employment status can be easy, however there are many situations that could cause this to be problematic. Should you need any help and advice on these rules, please contact us.
The content in this blog is correct as at 7 July 2021.