Off-payroll working rules (IR35)
This is being introduced to counter the avoidance of Tax and NI by individuals providing their personal services through a limited company (PSC).
A PSC is a company where the majority of income is derived from work performed personally by the shareholder.
From 6th April 2021, the responsibility for making IR35 decisions will fall onto the end client rather than the person providing the worker.
How does the client decide if IR35 applies?
To check your employment status for tax you can use the following tool: https://www.gov.uk/guidance/check-employment-status-for-tax
We would advise PSCs to check this regularly to ensure they are not falling within IR35, across all projects and contracts they work on.
If the end client deems the PSC contract to be outside IR35, then life carries on as normal – the worker operates via their limited company and pays tax in the same way as any other small company.
If, however, the worker is deemed to be inside IR35, the End client/ fee-payer is responsible for paying employers’ NICs, and deducting employees’ NICs and income tax from the PSC invoice for services provided, and paying these liabilities to HMRC.
It may therefore not be efficient to continue working via a PSC in this instance.
Actions you may need to take to prepare:
If you contract for a medium or large sized non-public sector organisation, you should now be taking action to prepare for these changes to the off-payroll working rules (IR35) coming into effect in April 2021.
You need to discuss the following with your end client and any interim agency:
- Decide if the contracting work you undertake is inside or outside the rules
- Ensure your end client provides you with a status determination statement (SDS) to confirm the IR35 position. Any agencies you engage with may also do this
- Consider if you are within IR35 whether you will need to be added to their payroll
- Be ready to deal with any disputes if you disagree with the SDS
Read the HMRC factsheet if you need further guidance – https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/929570/Changes_to_off-payroll_working_rules_factsheet_for_contractors.pdf
And use the flowchart to help decide your initial position – https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/928805/Contractor_flowchart_off-payroll_working_IR35.pdf
If you contract with a small business the changes to the off-payroll working rules do not apply to you.
We do however suggest getting confirmation that your end client IS a small business.
In this case, you as a PSC contractor will remain responsible for determining if the contract is inside the off-payroll working rules, and accounting for and paying the relevant Income Tax and National Insurance Contributions.