January 25, 2021

New Off-Payroll Working (IR35) Rules: Your FAQs

The new rules for off-payroll working (IR35) in the private sector are fast-approaching. If your business is busy preparing for the changes on 6 April, perhaps this blog post will help you.

We’ve compiled the questions asked by attendees at our recent off-payroll working (OPW) webinar. Our in-house payroll experts have answered them all – we hope you find them useful.

To help you find relevant FAQs, we’ve grouped them together under the following themes:

  • General FAQs
  • Qualifying Criteria
  • Running a Separate OPW Payroll
  • Intermediaries
  • Deemed Employees
  • Status Determination Statement (SDS)
  • Payroll Queries
  • National Insurance (NI)
  • Application of the New Rules
  • Overseas Workers
  • The CEST Tool
  • Invoices and VAT
  • Risk Advisers Approach
  • Moorepay Customers 

 

General FAQs

Where is the starter checklist, is this a standard document?

The starter checklist is a standard document and can be found on the HMRC website via this link: gov.uk/government/publications/paye-starter-checklist

Can I just make an off-payroll worker an employee? If they fall under the scope would it be better for both sides?

If you decide to class them as a normal employee, they would benefit from full employee rights (Statutory payments for sickness, maternity, adoption pay. Holiday Pay, AE etc) this is a decision you need to make as a company.

What happens with an off-payroll worker who is not a PSC who is paid on presentation of an invoice? Or if a supplier invoices us directly (not through an intermediary), would they be part of this process?

OPW is in place to ensure that ‘disguised employees’ i.e. those whose relationship with a client is the same as employer/employee apart from the fact that they are paid through an intermediary pay the same level of tax and NI as regular employees. For this supplier, OPW does not apply but you need to examine if they are genuinely a supplier or if they qualify for employment rights, please speak to an HR adviser if you need guidance.

 

Qualifying Criteria

Are the criteria based on 2020/2021 annual turnover/balance sheet or the current 2021/2022 financial year?

2021/22 annual turnover/balance sheet are to be used for the criteria assessment.

What is the definition of turnover? We are a pension scheme and have “income” through pension contributions which we invest on behalf of members, contributions from companies towards the cost of running the pension scheme and investment income from those investments that is retained in the pension scheme. Are any of these within the definition of turnover?

We would recommend that you speak with your accountant as your circumstances are particular to you as a business and all business’ have very differing circumstances.

 

Running a Separate OPW Payroll

Can you carry length of service over from one payroll to the other?

Off payroll workers are only ‘deemed employees’ and therefore length of service is of no consequence as they do not have the same employment rights as employees. In addition, when you determine that an OPW should be on your normal payroll they must be made a leaver and then set up as a new starter – as such length of service would not be a factor.

Do we need a separate PAYE reference if setting up a separate payroll?

If you are a Moorepay customer you will need to set up a separate payroll which means you will need to open a new PAYE scheme.

 

Intermediaries

Please could you define intermediary?

Employment intermediaries are responsible for making sure that tax and National Insurance are paid correctly for workers. An employment intermediary is a person or business who makes arrangements for someone to work for a third person. They are also often known as an ‘agency’ or ‘employment business’.

You’re an employment intermediary if you supply workers to work for an end client or another employment intermediary, and the client then pays you or someone connected to you for the worker’s services. The end client is who the worker does the work for. The client is the organisation who is or will be receiving the services of a contractor. They may also be known as the engager, hirer or end client.

Can you please run through examples of the types of contractor that would be deemed not paid through an intermediary?

An employment intermediary is a person or business who makes arrangements for someone to work for a third person. They are also often known as an ‘agency’ or ‘employment business’. You’re an employment intermediary if you supply workers to work for an end client or another employment intermediary, and the client then pays you or someone connected to you for the worker’s services. The end client is who the worker does the work for.

 

Deemed Employees

Could a Deemed Employee be working under PSC?

They typically will be in most cases, and hence become a ‘deemed worker’ through the CEST tool and would need to be processed using the IR35 rules.

There have been challenges around the difference between deemed employee and worker – HMRC paid out of court to one of their deemed employees. What should we do?

It is not compulsory to use CEST. The service is a part of HMRC’s employment status guidance. Detailed advice is available in HMRC’s Employment Status Manual. Independent advice on employment status is available from lawyers, accountants and suitably qualified tax professionals.

 

Status Determination Statement (SDS)

If a contractor providing repairs to the building, engages a person to assist, do we have to complete an SDS?

If you engage the contractor, you will be responsible for checking their employment status for tax and supplying the SDS. However, if they in turn engage a person to assist, they are the engager for that worker and are responsible for completing the check and supplying the SDS.

Are there standard questions or form for Are there standard questions or forms for SDS? If it is decided that someone is outside of IR35 which agency should be informed or is the SDS an internal document?

The CEST Tool is the tool to be used to determine the status, the SDS is the document that advises the ‘deemed employee’ as to the outcome of the CEST assessment, HMRC have not published a template to be used for this purpose, An SDS must be passed to the worker and the person or organisation you contract with and give your conclusion and the reasons for coming to it.

 

Payroll Queries

If they are paid in arrears what about the FPS in April would it be a zero FPS?

It would yes, as the payment presumably would be made in May, as such the figure would be on May FPS file.

Do they need to supply P45 details for the PAYE calculations for the year?

HMRC regulations specify that P45s must not be applied to deemed employees’ records, they must provide a starter checklist only. There are on-going discussions between payroll industry leaders and HMRC on the position with tax codes for OPW but currently, if you apply a P45 you will be non-compliant.

 

National Insurance (NI)

Do we operate the same NI categories?

NI is no different to that of normal employed workers.

Do contracts also have to pay Employer’s NI as neither the client pays or or the Umbrella company that charges the contractor to manage their pay?

Ee’s and ER’s NI is applicable and due and must be calculated and paid through the Off Payroll working payroll.

Can someone be paid a small salary under the tax and Ni threshold and then submit an invoice for additional project work?

The off-payroll working rules apply on a contract-by-contract basis. A worker may have some contracts which fall within the off-payroll working rules and some which do not. You need to assess the ‘work’ they will be providing to you to determine if IR35 applies to them, if it does you need to follow the IR35 process accordingly – this could mean them being on an OPW payroll as well as a standard payroll.

 

Application of the New Rules

Do the new off-payroll working rules apply to charities?

They do yes, charities are not exempt from IR35 regulations.

Does the IR35 rule apply to a limited company used for project work?

It does yes, they are not exempt from IR35 regulations.

Does this apply if you have a temporary worker through an agency? How does IR35 apply to staff “employed” and invoiced though a major temp agency? 

Please refer to this link for detailed guidance regarding agency staff and the responsibilities regarding IR35: https://www.gov.uk/guidance/employment-status-employment-intermediaries

What about a contractor who also works for other companies, e.g. only spends a day or so a week with our company?

IR35 rules must still be applied – deemed workers can work for several companies at once and each company must apply the CEST tool and provide an SDS form as applicable to the status determination they will be using.

What if employee currently is on normal payroll but also works for us via intermediary?

The off-payroll working rules apply on a contract-by-contract basis. A worker may have some contracts which fall within the off-payroll working rules and some which do not. You need to assess the ‘work’ they will be providing to you to determine if IR35 applies to them, if it does you need to follow the IR35 process accordingly – this could mean them being on an OPW payroll as well as a standard payroll.

What if we put the off-payroll workers on a zero-hour contract? Do these rules still apply and do we still have to have a separate off-payroll working payroll?

Yes, the rules still apply as these deemed workers do not have salaries, the payroll instead pays them the ‘invoice’ amounts. If you are a Moorepay customer you will need an OPW payroll to pay these deemed workers.

If you are a small company and the worker determines that they should be a deemed employee, does all the advice and guidance you gave on the last slide still applies?

if you fit the criteria for a small business then you do not apply IR35 rules, HMRC have not determined that this legislation is applicable for small businesses yet.

We are a private Ltd company with 10 staff. If we employ 10 staff we are classed as a small company.  Do these rules therefore apply to us if we work with a contractor?

You need to satisfy 2 out of the 3 criteria to be classed as ‘small’ If you satisfy 2 of these conditions, IR35 is not applicable to you.

If someone works 120 days of the year (less than 50% of the working days) and i deem them as a consultant, not an employee, is this permitted as off-IR35?

IR35 is not a time dependant legislation, if you are contracting via a PSC then you must use the CEST tool to determine status and apply the IR35 rules accordingly.

 

Overseas Workers

If the consultant/co is outside of the UK, does the same apply? e.g. consultants in India.

If your organisation is based wholly overseas then the rules do not apply, the workers intermediary (usually an LTD company) will be responsible for determining if the rules apply. You are classed as ‘overseas’ if your organisation does not have a UK connection (i.e. does not have a permanent establishment in the UK) However if you have a UK connection and the workers would normally be subject to PAYE in the UK (if they were working in the UK) Then IR35 applies to these workers. However, if they are non UK nationals that you are supplying to work for a company overseas IR35 does not apply.

If a contractor is based outside of UK but has a UK Ltd company are they excluded? 

If you remain liable for tax in the UK, then you are liable for an off-payroll worker re-assessment of whether you were an employee of a foreign company or whether you were a genuine contractor. You will only cease to be tax-liable on earned income in the UK after a full year abroad.

Do these rules apply to contractors who are based overseas and based in another tax jurisdiction other than the UK?

If you remain liable for tax in the UK, then you are liable for an off-payroll worker re-assessment of whether you were an employee of a foreign company or whether you were a genuine contractor. You will only cease to be tax-liable on earned income in the UK after a full year abroad.

 

The Government’s CEST Tool

Is there a good checklist available to do self-assessment?

The CEST Tool is used to determine the status, the SDS is the document that advises the ‘deemed employee’ as to the outcome of the CEST Assessment. HMRC have not published a template to be used for this purpose, however an SDS must be passed to the worker and the person or organisation you contract with and give your conclusion, and the reasons for coming to it.

You can find the CEST tool here.

What to do if do the CEST and it comes out as not sure? 

It is not compulsory to use CEST. The service is a part of HMRC’s employment status guidance. Detailed advice is available in HMRC’s Employment Status Manual. Independent advice on employment status is available from lawyers, accountants and suitably qualified tax professionals.

We employee agency nurses, we do not know whether they are employed by agency or work as a self-employed. These can be different nurses every day – do I have to obtain a CEST tool for everyone?

Please refer to this link for detailed guidance regarding agency staff and the responsibilities regarding IR35: https://www.gov.uk/guidance/employment-status-employment-intermediaries

 

Invoices and VAT

If a consultant provides a monthly invoice does that now have to go via payroll going forward?

You will need to use the HMRC CEST tool to determine if they are a ‘deemed employee’ and if they are you will need to apply IR35 rules to them.

How do we deal with VAT on consultants’ invoices, is this paid separately?

it still has to be paid, however not necessarily through the payroll. Your finance department may want to pay this for example, it is an internal decision as to how your company wants to deal with this element of payment.

Can a person be in the regular payroll (director on salary) and in off-payroll at the same time for invoices?

The off-payroll working rules apply on a contract-by-contract basis. A worker may have some contracts which fall within the off-payroll working rules and some which do not. You need to assess the ‘work’ they will be providing to you to determine if IR35 applies to them, if it does you need to follow the IR35 process accordingly – this could mean them being on an OPW payroll as well as a standard payroll.

Could the contractor’s company issue a regular invoice for “service charges” for the provision of contractors (which would be treated as regular VAT invoice) together with another invoice for the work by a particular contractor deemed within IR35 (where PAYE would be deducted)

We would recommend the issue of a separate invoice for deemed employees for clarity in accounting and minimizing errors.  However, care must be taken that all earnings which are subject to PAYE for the deemed employee are included.

Can commuting expenses, etc be included on the invoice (not normally reimbursed for employees)?

this would be a decision you would make within the provision of the service you contract them for, and if agreed to be paid, can be paid either via an expenses payroll (separate to the ‘off Workers payroll’) of via an expenses pay element set up on the OWP.

What should you do if you have paid by invoice and then realise that the payment should have been via the payroll?

In this situation you would have effectively overpaid the deemed employee and normal overpayment processes should be followed.

Risk Advisers Approach

EXAMPLE OF A CLIENT NOT TAKING REASONABLE CARE
A medium-sized company engages an agency to supply workers. The workers supplied by the agency operate through their own PSCs. The client decides not to take any steps to prepare for the introduction of the off-payroll working rules. It elects to simply determine that all workers who provide their services through a PSC will be caught by the new rules, because they undertake similar roles and are engaged under similar terms and conditions. It does this, believing that this will protect it from any liability to pay tax and NICs on payments to those workers. The client passes the same SDS to every worker and the agency.

Even though the client has determined that the off-payroll working rules apply to the engagement, and passed on the SDS to the worker and agency, as the company has not taken prudent and reasonable steps when making their determinations, liability rests with it. The client has not considered the status of the workers contracting under different terms and conditions, so it has not satisfied the condition to take reasonable care. The responsibility for the deduction of tax and NICs, and the payment of the apprenticeship levy and paying these to HMRC if due rests with the client.

 

Moorepay Customers

If some PSC’s are paid monthly, and others weekly, can Moorepay pay multiple payments on a secondary payroll?

Each payroll frequency has to be set up separately, one payroll for a weekly payment frequency and one for a monthly payment frequency.

We are a part managed service with Moorepay – are you going to engage with customers to see if we need an off payroll working payroll?

if you are aware you use private service companies to carry out work for you, it is likely you will require an OPW payroll to be set up. Please reach out to your support desk who will be able to advise further.

How will you account for VAT on Moorepay?

A product demo on Moorepay’s payroll system functionality takes you through what the system will be able to do for you. You can watch it here.

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About the author

Claire Younger

About the author

Claire Younger

With a career in payroll spanning 24 years, Claire is CIPP qualified and has been with Moorepay for 19 years. Claire has enjoyed a wide range of roles in payroll, starting out as as a Trainee Payroll Administrator, and progressing to a Payroll Manager. She's also worked as an Operations Consultant, Offshoring Consultant, Project Manager, Implementation Manager, Partner Enablement Manager, Strategic Account Manager and most recently, a Business Improvement Manager. Claire is passionate about business improvement, client service and working across multiple teams. She often works in a ‘troubleshooting’ role supporting colleagues in operations and implementation with special projects, process improvement and best practice.

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