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How Are the Off-Payroll Working Rules Changing in 2021?

February 2021

On 6 April 2021 significant changes to the government’s IR35 regime will come into effect. The IR35, also known as the off-payroll working rules (the “Rules”), govern the national insurance contributions (NIC) and income tax contributions of ‘off-payroll workers’.

These are workers who are not classed as employees, but who provide services to clients via their own limited company or another form of intermediary (personal service companies). Such workers are often referred to as contractors or consultants.

Historically, contractors in the private sector have been responsible for determining their own status. Where determined that they are operating within the Rules, they must ensure the correct NIC and income tax is paid.

Changes to the Rules will require medium and large-sized private sector businesses to determine whether they apply to their consultants or contractors and make the relevant tax payments.  If you are a small business in the private sector, you will benefit from an exemption and will continue to be responsible for determining your status under the Rules.  A business is considered small, where two or more of the following criteria are met:

  1. Annual turnover is no more than £10.2 million
  2. Balance sheet total is no more than £5.1 million
  3. No more than 50 employees

Given the additional administrative and financial burdens on businesses to which the wider Rules will apply, an assessment should be carried out well in advance of the 6 April deadline.

Who Qualifies as an Off-Payroll Worker?

An off-payroll worker could refer to the individual, a worker’s own personal service company, or a partnership providing paid services to a client. However, the rules only apply on a contract-by-contract basis. Some contracts fulfilled by an off-payroll worker may not be subject to the same rules. HMRC’s employment status checker can help you determine which contracts fall under the IR35 rules.

What Should Businesses Do to Prepare?

Identify: Set aside some time to review the working arrangements in your organisation. Make a note of who is an off-payroll worker and carry out an assessment of whether the amended Rules may apply to them.

Check: HMRC’s Check Employment Status for Tax tool can help you to identify the appropriate classification and related tax treatment of off-payroll workers.

Organise: Consider implementing processes in your business to help you decide if the Rules will apply when entering into arrangements with contractors or consultants in the future. You should bear in mind that this may impact the way you make payments to contractors and you may need to brief a dedicated team within your organisation on how to determine who will fall into this category.

How We Can Help

Our employment team can assist you with any questions or concerns you may have about the new changes to the Rules and how they will impact your business. We understand that new payroll procedures can pose a challenge for many HR and Finance teams, which is why we always endeavour to provide clear, tailored advice to each organisation. If we can help you with any of your employment matters, please do not hesitate to get in touch.