The introduction of new IR35 rules for the Private Sector, which were originally due to commence from April 2020 (but were delayed due to the impact of Covid-19), now look set to go ahead - with effect from 6 April 2021.
The significant changes will apply to medium and large businesses engaging with ‘Off-Payroll’ workers provided via an intermediary, such as a Personal Service Company (PSC).
Presently, workers (often called contractors) who provide their service to a private sector end user via an intermediary (such as a PSC) are responsible for determining if IR35 applies to any engagements they work on.
From 6 April, the responsibility will move up the chain, meaning “medium” and “large” businesses will be required to consider if IR35 applies to an engagement, where a worker is provided via an intermediary. ‘Small’ end user businesses are exempt from this change.
A business will be defined as “small” if it meets two of the following conditions:
turnover not exceeding £10.2 million
£5.1 million or less on the Balance Sheet
number of employees does not exceed 50
Regarding the changes, HMRC has recently confirmed that it will not issue penalties for inaccuracies in the first 12 months of the regime, unless there is evidence of deliberate non-compliance. They have also confirmed that they will not use information received under the expanded regime to open new compliance enquiries into returns for tax years before 2021/22, unless there is reason to suspect fraud or criminal behaviour.
The HMRC Guidance on the Off Payroll Rules can be found here and includes an Employment Status for Tax checker. If the rules indicate that a worker should be treated as an employee for tax purposes, then PAYE needs to be operated on payments.
Please contact us if you think the changes affect you.