The off-payroll working rules
The off-payroll working rules can apply if a worker provides their services through an intermediary.
An intermediary will usually be the worker’s own personal service company. They could also be a partnership, a managed service company, or an individual.
The rules make sure that workers, who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and National Insurance contributions as employees.
These rules are sometimes known as ‘IR35’.
You may be affected by these rules if you are:
- – a worker who provides their services through their intermediary
- – a client who receives services from a worker through their intermediary
- – an agency providing workers’ services through their intermediary
If the rules apply, tax and National Insurance contributions must be deducted from fees and paid to HMRC.
When the rules apply
The rules apply if a worker provides their services to a client through an intermediary, but would be classed as an employee if they were contracted directly.
Before 6 April 2020
If you’re a worker and your client is in the public sector, it’s their responsibility to decide your employment status. You should be told of their decision.
If you are a worker and your client is in the private sector, it’s your intermediary’s responsibility to decide your own employment status for each contract. The private sector includes third sector organisations, such as some charities.
From 6 April 2020
From 6 April 2020 how the rules are applied will change.
All public sector authorities and medium and large-sized private sector clients will be responsible for deciding if the rules apply.
If a worker provides services to a small client in the private sector, the worker’s intermediary will remain responsible for deciding the worker’s employment status and if the rules apply.
IR35 and April 2020 changes to off-payroll working for clients
Understand and prepare for changes to the off-payroll working rules (IR35) if you’re a client receiving services from a worker through their intermediary.
How the off-payroll working rules are applied will change from 6 April 2020. From this date, all public authorities and medium and large-sized clients will be responsible for deciding the employment status of workers.
Who the rules apply to
Some rules already apply to all public sector clients, but from 6 April 2020 medium and large-sized private sector clients also need to apply them.
You should do this if you have an annual turnover of more than £10.2 million. This is sometimes known as the simplified test.
You cannot use the simplified test if you are:
- – a company
- – a limited liability partnership
- – an unregistered company
- – an overseas company
If this applies and you cannot use the simplified test you should still apply the rules if you meet 2 or more of the following conditions. You have:
- – an annual turnover of more than £10.2 million
- – a balance sheet total of more than £5.1 million
- – more than 50 employees
This is in line with the small companies regime.
The private sector includes third sector organisations, such as some charities.
There are also rules around connected and associated companies. If the parent of a group is medium or large their subsidiaries will also have to apply the off-payroll working rules.
When you need to start applying the rules
Public sector clients
You must continue to apply the rules when the changes come into force on 6 April 2020. However, from this date there are extra responsibilities that will affect you.
Private sector clients
If you meet the conditions above you must start applying the rules when the changes come into force on 6 April 2020.
If you use the simplified test to determine your size, you must apply the rules from the start of the tax year following the end of the calendar year when you met the conditions.
If you do not use the simplified test and do not meet the conditions on 6 April 2020, your circumstances may later change. If you then meet the conditions for two consecutive years, the date you need to apply the rules will be different. You must apply the rules from the start of the tax year following the end of the filing period for the second financial year when you met the conditions.
What you need to do as a client
You will be responsible for deciding the employment status of workers. You’ll need to:
- – decide the employment status of a worker – you must do this for every contract you agree with an agency or worker
- – pass your determination and the reasons for the determination to the worker and the person or organisation you contract with
- – make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid
- – have processes in place to deal with any disputes that arise from your determination
If you’re also the fee-payer and the off-payroll working rules apply, you will need to deduct and pay tax and National Insurance contributions to HMRC.
Small-sized clients in the private sector will not have to decide the employment status of their workers. This means that you will not receive a determination from them. This will remain the responsibility of the worker’s intermediary.
Taking reasonable care when making a determination
You must take reasonable care when you make a determination about the employment status of a worker.
Failure to do so will result in the worker’s tax and National Insurance contributions liability becoming your responsibility.
Who to tell about your determination
From 6 April 2020, you must tell the worker, agency, or other organisation you contract with of your determination. Do this whether your determination shows that the off-payroll working rules will apply or not.
You must provide reasons for your determination.
You must pass on your determination on the date, or before the date, the contract is entered into. If the work starts later, give your determination before that later date.
You’ll hold the liability for tax and National Insurance contributions until you tell the worker, and the person you contract with, of your determination and the reasons for it.
A status determination statement issued before 6 April 2020 is valid under the new rules. If the working practices of the engagement change or you negotiate a new contract with the worker, you need to make sure that you re-check the rules to see if they still apply.
What to do if a worker disagrees with your determination
A worker or the agency paying the worker’s intermediary may disagree with the employment status determination you reached.
If this happens you’ll need to:
- – consider the reasons for disagreeing given to you by the worker or agency paying their intermediary
- – decide whether to maintain the determination because you feel it is correct and give reasons why, or withdraw the determination because you feel it was wrong
- – keep a record of your determinations and the reasons for them
You must provide a response within 45 days of receiving the disagreement. During this time you should continue to apply the rules in line with your original determination.
Tell the worker if the determination has not changed.
Tell the fee-payer and the worker if the determination has changed.
If you do not respond within 45 days, the responsibility for paying tax and National Insurance contributions will become your responsibility.