IR35 – Off book or Off payroll working
The long awaited IR35 rules are to be implemented by HMRC in April 2021. These rules are already in place for the Public Sector and were due to be commenced in April 2020 for the private sector. However, the intervention of Coronavirus has meant that they were shelved for 12 months.
The legislation is found in the Finance Act 2020 and will be implemented on 06 April 2021. IR35 was simply the number of a press release way back in the 90s, but it has become synonymous with off book working – that is using consultants, freelancers or contractors, rather than employees.
Essentially the big change is that it is the business/end user who becomes responsible for Tax and NIC rather than the contractor and Tax and NIC has to be deducted at source in the same way as it is done for employees.
The new rules were introduced in the public sector, but it caused such a brain drain as consultants moved quickly to the private sector, that
HMRC needed to level the playing field – and, of course, HMRC was losing a fortune in taxes.
So from 06 April if you have contractors who may be deemed employees, they have to be registered with the HMRC New Starter checklist (NEW 6.4.21). You will then effectively be taking tax and NIC, but the ‘employee’ will not receive the normal rights associated with employment.
The new rules only apply to Medium and Large businesses, that is companies which 2 out of these three statements apply for the last two successive financial years
1. Has a turnover of not more than £10.2million
2. Has not got more than £5.1million on the balance sheet
3. Has, on average, no more than 50 employees
If this does apply you can continue in the normal way, i.e. the contractor can still invoice you, be paid gross and they are left to decide their own tax status, However, you must still be aware that HMRC will want to be certain that your worker is a genuine consultant and not a disguised employee.
A tool has been developed by HMRC to test whether your worker should be considered as self-employed or an employee The Check Employment Status for Tax or CEST tool can be found here: https://www.gov.uk/guidance/check-employment-status-for-tax
The CEST tool will provide a Status determination statement (SDS) which can be used to advise contractors if the off-payroll rules apply.
Interestingly the new rules do not apply to sole traders, just to consultants that work through an intermediary, such as their own limited company.
If you are even slightly worried about the implementation of the new HMRC rules, please call the experts at Premier Legal LLP at out head office in Nottingham on: 0115 856 1625