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Kirk Rice Blog

Off-Payroll Working – IR35 Changes – Delayed to 6 April 2021Written on March 16, 2020 by Kirk Rice LLP

Off-payroll IR35 was designed to prevent tax avoidance by contractors or freelancers working through their own intermediaries as 'disguised employees.' It has been around for nearly two decades. We saw some significant changes in 2017, where the public sector as clients became responsible for deciding on the employment status of their workers and assuring the financial risks of employment taxes if wrongly assessed. We are now facing further changes in 2021.

What off-payroll IR35 changes are coming in?

From 6 April 2021, in addition to the public sector, medium or large-sized private sector clients will also be responsible for deciding their worker’s employment status.

The rules will apply to all public sector clients and private sector clients who meet two or more of the below criteria:

  • Annual turnover of more than £10.2million
  • Balance sheet total of more than £5.1million
  • More than 50 employees.

If you make the status determination, then you are responsible for deducting PAYE and National Insurance from the fees paid to ‘contractors’ who fall inside IR35 and paying it to HMRC. The changes will see medium or large-sized private sector clients having to accept this responsibility.

What does the change in IR35 mean for my large private company?

You will need to review all contracts that you have in place with workers and agencies. It is your responsibility to decide on how to treat their workers, and you will face the risk of an HMRC assessment should the incorrect decision be made. Once complete, you will need to communicate the outcome and reason for the decision to the worker and the organisation you contract with.

If you are also the ‘fee-payer’, then you will have to add the worker to your payroll, marking them as an IR35 off-payroll worker. The net amount invoiced will be treated as gross salary, and you will need to deduct PAYE and National Insurance contributions. It will then be your responsibility to pay these over to HMRC.

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What does this mean for my company if I provide services to a large private sector client and they assess me as IR35?

Even if in theory, you ‘fall outside IR35’, the client may still decide to treat you as ‘within IR35’ for their own purposes. If so, you will have to conform.

Under this scenario, the ‘fee-payer’ will need to add you to their payroll. Your company will raise a sales invoice to your client as normal. Your company will receive payment from the ‘fee-payer’ that is net of the PAYE and National Insurance that has been deducted at source, as assessed on the ‘individual contractors’ tax code.

Since the services provided by the worker have already been subject to PAYE and National Insurance, at the individual’s rates, there is no further tax on the amounts as the individual withdraws them from the company.

 

What if I provide services to a company that I think is small but falls under IR35?

It is your responsibility to assess the situation, and you will need to understand the size of the ‘fee-payer’, but essentially the rules would be as they were before 6 April 2021. You will need to determine whether you are caught by IR35 and should the incorrect decision be made then you will face the risk of any HMRC assessment.

Under this scenario, you will raise a sales invoice to your client as usual. The net amount of the invoices received is classed as deemed salary. This is processed through your company payroll calculating the relevant PAYE, Employees and Employers National Insurance to be paid to HMRC.

 

What if I still believe my contract is outside IR35?

If you have assessed your situation, your contract remained outside of IR35, and your ‘fee-payer’ also agrees to pay you ‘off-payroll’, then you would be able to continue trading in the same way. You will be able to manage the level of funds withdrawn from your company via dividend and salary for them to be tax efficient. Each contract should be looked at on a contract by contract basis to ensure that off-payroll working does not apply.

 

How can we help?

Our team is on hand to advise and help you navigate through this complex legislation. Whatever your circumstance, we can provide professional advice to help with the following:

  • Contract review
  • Determination of your IR35 status
  • Ensure your working practices are aligned correctly
  •  Assist with payroll obligations
  • Assess the tax implications of the IR35 changes for both your company and the individual.

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IR35 PERSONAL SERVICE COMPANIES

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Any reader interested in discussing how the off-payroll IR35 changes and how they might affect you should email info@kirkrice.co.uk to arrange an appointment with one of our specialists.

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. Tax treatment is based on individual circumstances and may be subject to change in the future. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases or, and reliefs from taxation, are subject to change. The Financial Conduct Authority does not regulate tax planning.

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