Off-payroll working (IR35) from 6 April 2021 – It’s not going away!
Changes to off-payroll working (IR35) were due to be introduced in 2020, but were delayed by 12 months. It now looks as though it’s not going away, and will be implemented from 6 April 2021. It’s been successful in the public sector and so is now being implemented in the private sector.
The reform is designed to ensure individuals working like employees but through their own limited company (‘personal service company’ or ‘PSC’), or other intermediary, pay broadly the same Income Tax and National Insurance contributions (NICs) as individuals who are directly employed. This means that the way many contractors pay tax will change for services provided on or after 6 April 2021.
HMRC will focus on ensuring compliance with the new rules, rather than investigating past arrangements
If you contract for a medium or large-sized non-public sector organisation from 6 April 2021, your client will be responsible for deciding your employment status for tax for the services you provide them. They should provide you with a ‘Status Determination Statement’ if the rules apply, setting out and explaining their decision.
If your client determines that your contract is inside the off-payroll working rules and so you are a deemed employee for tax purposes, then your client or the agency who pays your fees, will also be responsible for deducting Income Tax and NICs before they pay you.
You will still need to submit a tax return, but relief is available on the tax already paid.
If you contract for a small non-public sector organisation, your limited company or other intermediary will remain responsible for determining whether your contract is inside the off-payroll working rules, and accounting for and paying the relevant Income Tax and NICs.
These changes do not affect whether you can work through your own limited company. This will still be possible after 6 April 2021, however the way the Income Tax and NICs are calculated and paid may change for some contractors, or some clients may change the way they wish to engage you and other contractors.
There are also cash flow implications to be considered, as Income Tax and NICs will be deducted where it previously hasn’t.
Many medium or large-sized non-public sector organisations are taking a precautionary approach, and have determined that all contractors are caught by IR35 and the new regulations, therefore requiring PAYE to be deducted from any future payments.
Further details are available on the GOV.UK website: https://www.gov.uk/topic/business-tax/ir35
If you have any questions or would like to speak to our team about your situation, then please get in touch! You can call on 01243 782 423 or head to our contact form!
We will also be holding a webinar on the subject in due course, which will be available on our YouTube Channel – Subscribe here: Lewis Brownlee YouTube channel