IR35 changes, originally due to come in last year but delayed because of the COVID-19 pandemic, will take effect from 6 April 2021. This will alter the rules for engaging individuals through personal service companies and shift the onus for determining whether the off-payroll working rules apply from the worker to the client receiving their services.

Off-payroll working now

Off-payroll working refers to people who are working for an organisation (the client) but not as an employee on the payroll. This person (the worker) is usually engaged via a limited company, or perhaps through an agency and a limited company, and the client makes a payment to the company or agency which doesn’t go through the payroll. It is currently the responsibility of the worker and their limited company to determine whether the role is akin to employment, but this is changing…

Off-payroll working from 6 April 2021

From April 2021, any medium or large entities (using the Companies Act definitions of medium and large) will have to consider whether any of these workers should be deemed employees. The onus will be on the client when paying workers to make that determination and, when they have assessed the status of any worker, to issue a Status Determination Statement (SDS) to both the worker and the intermediary. These rules have applied to the public sector for some time now, so this extension just aligns the private sector with them. However, if the client is “small” the onus is still on the worker and their intermediary to make this decision.

Next steps for medium or large entities

If you are a medium or large entity, you need to review all off-payroll workers before 6 April 2021, to conclude on their status and issue a SDS to them. If you conclude that they are deemed employees, any payments from April will need to be made through PAYE.

Next steps for workers who disagree with a SDS

If you disagree with a SDS given to you by a client (and you’ve not had your final payment from them under your contract), you can register your disagreement to the notice with them and they have 45 days to respond, providing you with reasons for their decision. If you still disagree and time permits, you can repeat this process. If you can’t reach an agreement with your client or you have exceeded the time period to appeal, then your only remaining route is to enter the income on your self-assessment tax return not as PAYE income, make a declaration in the “white space” on your return and separately seek a repayment from HMRC of the Class 1 NIC deducted.

As a worker, you may not know whether the organisation you are working for is medium or large. If you want to know this because you’ve not been issued with a SDS, the off-payroll working rules give you the right to seek confirm of your client’s size.

How we can help

For clients who are unsure if they fall into the medium/large category, we can help to provide confirmation, taking into consideration UK and overseas entities and companies under common control. Whilst employment status is often a grey area, we can also help you consider this and it might be worth you taking a look at the HMRC employment status indicator tool Previously there has been some concern about this tool and whether it takes into account all factors, but it can certainly provide a useful starting point. If it gives a result, HMRC have agreed to be bound by it if all facts have been entered correctly.

If as a worker you have concerns, we can also help you understand the rules and how they may affect you and your company.

This is a very brief overview of the changes taking place in April, so if you want to talk about this in more detail please just get in touch with your usual Sagars contact or send an email to Kate Naylor.

Kate Naylor
Kate Naylor

Business Tax Partner

Kate spends a lot of time working with businesses and their owners on tax strategies and mitigation, which includes looking at the business and its structure, through to the owners personal tax situation and their longer term goals and plans.

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