Off-Payroll Working Rules

Are you prepared for the new Off-Payroll Rules?

The Off-Payroll rules are coming in to effect on the April 1st 2021 and this means if you are a contractor, freelancer or agency you need to be prepared for the new IR35
legislation.

The Off-Payroll working rules are not new, in fact they have been in action since the turn of the millennium. Created to ensure the fair taxation rates and NI Contributions
between an organisation’s employees and intermediary workers contracted through an agency or a Limited Company.

The changes on April 1st will mean that it is the responsibility of the company which contracted the work to ensure the Off-Payroll rules are followed. This entails
determining whether the off-payroll rules actually apply and then calculating and deducting the relevant taxes and NI Contributions.

 

Who do these rules apply to?

Public sector clients already fall under the rules and will see no change, but starting from April 2021 medium and large private sector companies will also be required to comply, this will include organisations which are not-for-profit and charitable organisations. These rules will affect all connected and associated companies of a large or medium business and the off-payroll rules will apply to the subsidiaries.

Off-payroll will take affect where a company and clients meet two or more of the following criteria:

–     Employees numbering 50 or more
–     Annual turnover of £10.2 million or above
–     A balance sheet total of £3.1 million or above

There is a ‘simplified test’ which applies to some clients. The rules must be applied where the annual turnover is above £10.2 million and the clients are not:

–      a company
–      a limited liability partnership
–      an unregistered company
–      an overseas company

In regards to small companies within the private sector, the employment status of their workers will be decided by, and the responsibility of the employee or their intermediary. If a company is asked its size by the employee or intermediary then this must be supplied.

Client or company, what’s next?

The employment status of contracted workers who operate through their own intermediary, whether that is an agency or their own Limited Company, will need to be determined. To outline your decision and the reasons behind it, a SDS (Status Determination Statement) will need to be filed for each worker, providing the employee and the organisation they connect through with their own copy.
Determining the status of each worker must be carried out with reasonable care, failing to do so will result in the worker’s tax and National Insurance contributions becoming your responsibility.
An SDS can be issued for employees before the rules come in to force in April 2021. We also recommend having a process in place to answer any queries that the status determination may raise, and provide some guidance in resolving any status disagreements.

As the party who will be paying the employee, intermediary or limited company, you will need to deduct the tax and NI contributions yourself and pay these directly to HMRC.

The new rules may pose some challenges or raise some questions. If you are having a hard time figuring out the new rules and how they apply to you, contact NEXA Accountants today and speak to one of our specialists about the changes.