What are the new Off-Payroll Working Rules?

From April 2021 , all medium and large sized clients will be responsible for deciding the employment status of workers.

What is IR35?

IR35 is the UK government’s off-payroll working rules which can apply if a worker (sometimes known as a contractor) provides their services through an intermediary. The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees. The rules do not apply to the self-employed.

What you need to do as a client

You’ll need to decide the employment status of a worker, you must do this for every contract you agree with an agency or worker. You’ll need to:

  • pass your determination and the reasons for the determination to the worker and the person or organisation you contract with

  • make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid

  • have processes in place to deal with any disagreements that arise from your determination

If you are also the fee-payer and the off-payroll working rules apply, you will need to deduct and pay tax and National Insurance contributions to HMRC.

Small-sized clients in the private sector will not have to decide the employment status of their workers. This will remain the responsibility of the worker’s intermediary.

Who is impacted by the change?

  • Recruitment agencies who supply workers operating through intermediaries, such as PSCs

  • Medium to large businesses who are using the services of ‘Off Payroll’ workers.

  • The worker

Terms to Note: 

  • End-User refers to the client company where the worker is working. 

  • Fee Payer is who pays the Personal Service Company, which may be the end-user, a recruitment agency, or another third party.

  • A Personal Service Company (PSC) effectively sells the work of an individual or small group of individuals, and is owned and operated by that individual or small group of individuals as a limited company. The term PSC was originally used by HMRC in relation to the introduction of the IR35 legislation back in 2000.

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