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New rules for off-payroll workers

Tuesday 12 January 2021

Changes to off-payroll working rules (IR35) are coming into effect in April 2021. Agents must understand and prepare for the changes and new rules, be mindful of potential additional costs when entering new arrangements with suppliers, and carefully consider renewals of existing contracts with workers for future engagements.

The new rules mean some agents will be responsible for the status of workers paid through an intermediary (such as a personal service company (PSC)) for income tax purposes.

Agents engaging the services of such workers must decide whether, if you ignored the existence of the intermediary, the worker would be regarded as a direct employee. If the answer is yes, the agent (as the client) must deduct income tax and National Insurance contributions (NICs) from the fees paid for the services.

The changes to IR35 apply to all public sector organisations and private sector companies that meet two or more of the following:

  • an annual turnover of more than £10.2 million
  • a balance sheet total of more than £5.1 million
  • more than 50 employees
  • not a limited liability partnership
  • not an unregistered company
  • not an overseas company

From 6 April 2021, businesses that do meet the criteria will take on new responsibilities and costs, necessitating the implementation of new procedures. As these new requirements are extensive, preparation for complying with the new IR35 rules should begin now.

This includes providing a statutory status determination statement to the worker, and any third parties, which communicates your decision as to their employment status.

This UK Government factsheet outlines the impact of the changes for businesses that meet the criteria. Additional costs include National Insurance contributions (currently 13.8 per cent) and, where applicable, the apprenticeship levy (0.5 per cent).

For businesses that do not meet two or more of the above criteria, the responsibility for applying IR35 will remain with the intermediary. For small agency businesses, these changes will only impact the engagement of 3rd Party ‘professional’ services not currently caught by the Construction Industry Scheme(CIS). 

Exemptions include businesses that fully outsource a whole service, without compelling workers to personally provide services to that company.