The off-payroll working rules apply if a worker (also known as a contractor) provides their services through their own limited company or another type of intermediary to the client.
The rules make sure that workers, who would have been employees if they were providing their services directly to the client, pay broadly the same tax and NI contributions as employees. These rules are known as IR35.
Currently, IR35 covers only the public sector authorities, but with the new changes now also cover medium and large-sized private sector clients.
Small companies are therefore exempt from the new rules providing they are in line with the Companies Act 2006 and they can be defined as having 2 out of 3 below features:
- Turnover – £10.2m or less
- Balance sheet – £5.1m or less (assets in B/S before deducting liabilities)
- 50 employees or less
From the 6 April, every company within the scope will need to assess and decide on the employment status of each individual worker, who works through their intermediary (e.g. through their own limited company).
Once the decision is made the company will need to communicate the decision with every worker using a Status Determination Statement (SDS). The company’s decision must be made with reasonable care, as failure to do so will result in the company needing to pay the worker’s tax and NIC. (The assessment needs to be done for every new engagement, even when it’s with the repeating worker).
Some of the questions considered when deciding on the outcome of SDS are:
- Whether the person provides services through a limited company, partnership, or unincorporated association
- Whether the worker can send a substitute to do the work
- Is the worker paying the substitute?
- Does the company have the right to move the worker from the task that was originally agreed with the worker?
- Does the company have the right to decide how the work is done, the workers working hours, place of work?
- Will the worker have to buy equipment, fund any vehicles costs, materials before the company pays him?
- How is the worker paid?
- Does the company provide the worker with paid-for corporate benefits?
- Will the worker have management responsibilities for your client?
It is really important that SDS is produced by a person who understands the applicable laws and guidance. Every worker should be assessed on a one-to-one basis and the SDSs that have already been created should be checked regularly to ensure that the reasonable care was taken when making the decision.
The new rules were created to make sure that workers who are working as an employee, but through their own intermediary (does not apply to the self-employed), pays similar/or same income taxes and NICs as other employees.
If the rules apply, tax and National Insurance contributions must be deducted from fees and paid to HMRC. (the PAYE and NIC is payables by the fee payer – either the end-user or a third party e.g. recruitment agency)
We know these are difficult times so please do get in touch if we can help you, or if you need any further clarification.
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