November 18, 2020

Are You Prepared for the Changes to Off-Payroll Working (IR35) Rules Effective from April 2021?

The off-payroll working (IR35) rules in the private sector are changing on 6 April 2021. HMRC recognises that businesses are facing challenges due to COVID-19 and are therefore providing lots of information and support to ensure businesses have plenty of time to prepare for the changes coming into effect.

Have you started planning for this change in legislation? If you haven’t, we urge you to start now. Not sure where to begin? Fear not. This blog will give you an overview of what’s changing and the steps you need to take to become compliant.

Background to the off-payroll working rules

In April 2017, the government reformed the off-payroll working rules in the public sector. This shifted the responsibility for determining employment status from the individual working through the intermediary to the public authorities engaging them. The reform also made the public authority or agency that pays the worker’s intermediary (the “fee-payer”) responsible for accounting for and paying Income Tax and NICs under PAYE to HMRC, on behalf of the worker.

The off-payroll working rules (commonly known as IR35) ensure that individuals who work like employees, but through a company (typically their own), pay broadly the same Income Tax and NICs as other employees.

They affect those who are engaged by companies that use specific, named people who work through their own intermediary – such as a Personal Service Company (PSC) – to carry out a piece of work for them and who would, to all intents and purposes, be paid like any other employee otherwise. It is for this reason they are considered to be ‘off payroll’.

The rules do not affect the self-employed.

What’s changing from 6 April 2021?

In 2018 the government announced that the reformed rules would be extended to medium and large organisations in the private sector in 2020. This was put on hold in light of the Coronavirus pandemic; the reform is now effective from April 2021.

Currently, in the private sector, the individual working through the intermediary determines their employment status and whether the off-payroll working rules apply. However, from April 2021 this responsibility is moving to the company or engager.

What are off-payroll workers not entitled to?

Off-payroll workers are not entitled to receive or have deducted from their pay:

  • Statutory payments: SSP, SMP, SAP, SPP, ShPP or Statutory Parental Bereavement Leave & Pay (new for 2020)
  • National Minimum Wage / National Living Wage rates or holiday pay
  • Student Loans or Post Graduate Loans
  • Auto enrolment pension scheme contributions

What actions do I need to take to prepare?

1. Check whether you qualify

If your business is classed as small, you fall outside the scope of off-payroll working rules. However, you must review your status each year.

If a business hits at least TWO of the qualifying criteria below, it needs to prepare for the upcoming changes to off-payroll working:

  • Annual turnover is more than £10.2 million
  • The balance sheet total is more than £5.1 million
  • The number of employees is more than 50

2. Check how many contractors you employ via an intermediary (PSC)

If you don’t have the information to hand, complete an audit of your contractor workforce to identify how many individuals you employ via an intermediary (PSC). You may need to check with your finance team or company director.

3. Determine employment status

Next you need to decide how you will determine the employment status.

HMRC’s CEST (Check Employment Status for Tax) tool has been modified to cater for the private sector. While you don’t have to use this tool, HMRC have said they will stand by the results given by the tool, provided it is used in accordance with our guidance and the information entered is accurate, and remains accurate. This is regardless of when the tool is used ahead of April 2021. This means you can already use the tool for engagements that start in April 2021 onwards.

Regardless of whether you determine the status is within the off-payroll working rules or not, you should issue an SDS (Service Determination Statement) to the worker. If you fail to provide an SDS and HMRC later decide you had made the wrong decision you will be liable for all the tax, NI and apprenticeship levy.

4. Enrol off-payroll workers

Finally, you will need to enrol off-payroll workers onto payroll under a different process. This is because you need to exclude them from employment practices they are not entitled to.

It’s vital that businesses who employ the services of individuals through intermediaries (PSCs) ensure they have robust systems and processes in place to ensure compliance with the new legislation.

How Moorepay can support you

Moorepay has set up a fast-track payroll service to make this easy, guaranteeing a simple onboarding experience to support compliance in as little as four weeks. Simply contact us to find out more.

If you’re a Moorepay customer, we can provide you with a separate payroll for off-payroll workers. You can email info@moorepay.co.uk or call 0345 184 4615.

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About the author

John Spooner

About the author

John Spooner

With 48 years’ experience in payroll, John has worked in both the public and private sector including 18 years in outsourcing. His previous roles include Payroll Manager, Operations Team Manager and Best Practice Consultant. John is responsible within Moorepay for keeping us up to date with all the payroll legislation changes.

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