Changes to off-payroll working rules (IR35)
Some
important changes to employment taxes come into effect from 6 April 2021.
Are you affected?
You are
affected by the changes to the off-payroll working rules (IR35) if:
- You
are a contractor who works through an intermediary, e.g. your own limited
company, often known as a personal service company (PSC), and
- You
provide your services to public sector organisations or medium or
large-sized organisations outside of the public sector.
A medium or
large-sized organisation will have a turnover of more than £10.2million, a
balance sheet total of £5.1m and/or more than 50 employees.
What is changing
From 6
April 2021, medium and large-sized organisations outside the public sector become
responsible for deciding the employment status of contractors for tax
purposes.
This
ensures consistency with the public sector, where these arrangements have been
in place since April 2017.
How the changes affect you
If you are
affected, the organisation you are providing your services to will determine
your employment status for tax purposes. Your hirer will give you a ‘Status
Determination Statement’, which will set out the determination your hirer has
made and the reasons behind this. You may be asked to provide the hirer with
some information to help them make their determination.
If they
determine that you are employed for tax purposes, they (or the agency they have
hired you through) will pay the necessary tax and National Insurance before
they pay you ("inside IR35").
If they
determine that you are self-employed for tax purposes ("outside
IR35"), you will remain responsible for meeting your tax obligations.
Depending on
your own personal circumstances the terms of your contract may change. It is
also possible that you will pay additional income tax and NICs if you had not
previously been applying the off-payroll rules (IR35) correctly. However, HMRC
will not use information resulting from these changes to open a new enquiry
into earlier years unless there is reason to suspect fraud or criminal
behaviour.
Summary
If you think
you may be affected you should seek a Status Determination Statement from your
hirer, and speak to them to help you understand what this means for you.
You can
find further guidance at: https://www.gov.uk/guidance/april-2020-changes-to-off-payroll-working-for-intermediaries
You may
also find it helpful to use the Check Employment Status for Tax (CEST)
tool: https://www.gov.uk/guidance/check-employment-status-for-tax
Important information
These
changes do not prevent people from working through their own intermediary. They
do not introduce a new tax but instead change the way that the tax is collected
when a contractor is inside the scope of IR35 and is regarded as employed for
tax purposes.
