Legislation will be introduced on 6th April 2020 to extend the application of the off-payroll rules that apply where the end client is a public sector body to engagements and is a medium or large public sector end client. Off-payroll working for intermediaries and clients is expected to change from April 2020. Be prepared for the changes to the off-payroll working rules (IR35) if you are an intermediary and your worker provides services to a client.
An intermediary could be a partnership, a managed service company and is usually a worker’s personal service company, but it could also be any other person.
The decision to reform the rules is driven by non-compliance. According to the Government, one-third of people who work through a Personal Service Company falls within the IR35 rules and should be taxed as employees, yet only 10% of the group apply these rules. The personal service company may lack the skills whether the rules apply to them. It is in the interest of the client to require the worker to provide their services through a PSC as this will save them National Insurance on employers. These elements contribute to non-compliance.
The off-payroll working rules are expected to change after 6th April 2020. This will affect contractors, recruitment agencies and large, medium sized end clients. All public as well as the private sector clients including charities and third sector organizations will be responsible for deciding your worker’s employment status. If this rule is implemented, your worker’s fees will be subject to tax and NI contributions.
But before the changes in IR35 rules i.e. before 6th April 2020 if your worker provides services to the client through you,
- Your employment status will be decided by the client in the public sector.
- You must decide your worker’s status in the private sector.
Who the IR35 rules apply to?
The rules apply to all the public sector as well as the private sector clients that meet two or more of the following:
- If the annual turnover is more than £10.2 million
- If the total of the balance sheet is more than £5.1 million
- And there are no more than 50 employees
What does the changes imply?
If your worker is providing services to a public sector client then:
- The worker must get employment status determination along with the reasons from the client.
- The worker will be able to dispute the determination given to them by their client, if they disagree with it
Different rules can apply if your worker:
- If the worker does not get an employment status determination from its client
- If the worker provides services to small clients in the private sector
What are your responsibilities from 6th April 2020?
Deducting Tax and National Insurance:
You are responsible for deducting tax and NI, if you make the status determination from your workers fees and pay it to HMRC. For your workers services, you are also responsible for deducting employer National Insurance Contribution from fees. After the rules apply, the public as well as the private sector client on the fee payer is responsible for deducting tax and NI and paying it to HMRC.
Payment to the worker:
If the IR35 rules apply, then tax and NI are deducted from the income of your workers services. This means that the workers do not need to pay the tax and NI contribution on those fees. This can be done by:
- A salary - no need to deduct tax or National Insurance contributions
- Dividends - No need to record on your worker’s Self-Assessment
This will avoid double payment of tax and NIC.
If your worker disagrees with determination, then they require you to write to the client to give reasons. The details should include the employment status determination and the reasons they disagree with.
Note: You must keep copies of all the records about disagreements.
The client will have 45 days in hand to respond from the date of receiving the worker’s disagreement. During that 45 days’ time, the client should continue to apply the rules with their original determination.
The client will have to inform the worker, if the employment status determination has not changed.
Suppose the employment status determination changes, then the client will have to inform the worker as well as the fee-payer.
Your responsibilities as a client
For every contract with an agency or a worker, you’ll need to decide the employment status of a worker. You’ll have to:
- pass your determination with reasons to the worker as well as the person or the organisation you are contracting with
- You must keep detailed records of your employment status determinations,along with the reasons for the determination and the fees paid
- For any disagreements arising from your determination, you will have processes in place to deal with.
You must take sensible care when you make a determination about the employment status of a worker. If you fail to do so, then the tax and National Insurance contributions of your worker will become your responsibility.
There is a lot happening in off-payroll working and the only certainty is that changes will be introduced. Make sure you keep abreast of the changes and apply rules correctly.
For more guidance and help, feel free to contact us