IR35 or Off-Payroll Working Rules – Are you Affected?

IR35 Protection - Onyx Accountants

Tuesday,  3rd March 2020, Updated Wednesday, 18th March 2020

The big IR35 Private Sector Reform is now under way with new legislation delayed and will now take effect from 6th April 2021, due to coronavirus pandemic.

Businesses and contractors up and down the country need to act now to establish how this is going to affect them and their work force.

If you are a contractor working under your own PSC – Personal Service Company, then this will impact on your business!

How it all began

The off-payroll working rules, known as IR35, were introduced in 2000 to ensure that someone working like an employee, but through a PSC, pays similar levels of tax to other employees.

The responsibility for ensuring these rules are followed is currently with the contractors and it is up to them to determine whether they are effectively employees.

Unfortunately, there continues to be an increase in reported cases where these rules are not being followed which results in unfairness between two individuals working in the same way but are paying different levels of tax.

Therefore in 2018 the Government announced that IR35 rules will be reformed within the Private Sector with effect from April 2020. These rules mirror the changes that were introduced within the Public Sector in April 2017. However, there is one noticeable difference, these rules will only apply to medium and large businesses.

The major change is that from April the responsibility for determining employment status will be transferred from the individual contractor to the organisation engaging them, as it is deemed more likely that they would be better placed to assess the status of the individual contractor.Do You know?The Criteria

These rules will apply to all public sector clients and private sector companies that meet 2 or more of the following conditions:

  • you have an annual turnover of more than £10.2 million
  • you have a balance sheet total of more than £5.1 million
  • you have more than 50 employees

Balance sheet total means the total amounts shown as assets in the company’s balance sheet before deducting any liabilities. This is in line with the small companies’ regime.

Small-sized businesses in the private sector will not have to decide the employment status of their workers. This will remain the responsibility of the worker’s intermediary.

The Test

CEST = Check Employment Status for Tax – it is an online tool developed by HMRC and is used to check the employment status of all individuals.

Organisations must now carry out a CEST test on each contractor, or PSC, to establish if they meet the employment status criteria before continuing with any contracted work.

When do these new rules apply?

Public sector organisations will continue to test each contractor as normal. However, from April, you will become responsible for an individual’s tax and national insurance liabilities if you fail to take reasonable care in determining the employment status of that individual.

Private sector businesses that meet the criteria will need to apply the new rules from 6th April 2021.

All individual contractors must ensure that the businesses they work for carry out the CEST. The business must identify if they are a small, medium or large size in accordance with the rules. The result of the CEST will determine whether you will be liable to tax and national insurance as if you were employee – this will affect how you are paid for the work undertaken.

The Determination – Results from the CEST

Each worker or agency must be notified of the determination of their employment status, regardless if this shows that the off-payroll working rules will apply or not.

You must provide reasons for your determination.

All engagements must be checked throughout the terms of each contract in the event that a change may result in a different outcome of employment status.

Individual Contractors – What you need to know

How and when you will be paid for any contracted work undertaken may be affected.

If, under the CEST, you are deemed to be taxed as an employee then this will relate to how your pay is calculated. You will not be entitled to any of the rights and benefits as if you were an employee of the business you are working for.

You may find that some larger organisations no longer take on contracted work as a result of these new rules which may ultimately affect your client portfolio.

HMRC’s Light Touch Approach

HMRC has announced that it will not issue penalties during the first year of rolling out these changes. However this only applies for genuine inaccuracies. Anyone who deliberately fails to follow and implement these changes will be penalised.

Protecting your Business

At Onyx we can provide IR35 Protection Services.

We provide a review service to examine your contracts, along with your working practices, to determine whether or not you are operating outside of IR35.

GET IN TOUCH WITH ONYX

If you have any queries, or want to discuss further, please give us a call us or e-mail us at  enquiries@onyxaccountants.co.uk for a FREE no obligation consultation.

Got any questions or queries? Our friendly team of tax specialists are happy to help. Just drop us a line! Call us on 0121 753 5522 or 01902 759 800.