Off-Payroll Working Rules are coming - Are You Ready?

Are you ready for the new Off-Payroll rules? They are coming into force from 1st April 2021. If you’re a contractor, freelancer or agency, you need to be prepared for the off-payroll IR35 legislation - and time is running out.

Off-payroll working rules have been in place since 2000, designed to ensure fair taxation rates and National Insurance contributions between an organisation’s employees, and intermediary workers contracted via an agency or Limited Company (the rules don’t apply to self-employed contracted workers).

The changes will place responsibility for adherence to off-payroll rules on the company the contracted worker is providing their services to, meaning said company will have the responsibility of determining whether off-payroll rules apply, and calculating and deducting the appropriate taxes and NI contributions.

Which companies do the rules apply to?

The rules already apply to public sector clients, but from April 2021 they will also apply to medium and large private sector companies, including ‘third-sector’ organisations like charities and not-for-profit companies. When it comes to connected and associated companies, if the ‘parent company’ is a medium or large business, off-payroll rules will also apply to subsidiaries.

Companies and clients who meet at least two of the following will be affected:

• An annual turnover £10.2 million or more
• A balance sheet total of £5.1 million or more
• Employees numbering 50 or more

There’s also a ‘simplified test’ that takes annual turnover into account - the rules apply to clients who are not a company (including those unregistered or overseas) or Limited Liability Partnerships (LLP), and who have an annual turnover of over £10.2 million.

Small companies in the private sector will not have to decide the employment status of their workers - this will be the responsibility of the employee or their intermediary. You will need to confirm your company size with the intermediary or employee if asked.

What you need to do as a client or company

As a client or company you will need to determine the employment status of contracted workers who operate through their own intermediary, be that their own Limited Company or an agency. You’ll need to fill out a Status Determination Statement (SDS) for each worker, which must outline your decision and the reasons behind your coming to it. A copy will have to be given to both the employee and the organisation they are contracted through.

It’s important that you take reasonable care when making a determination. You can issue an SDS before the rules come into force if the rules apply. It’s also prudent to have a process in place to deal with queries regarding your determination, as well as keeping detailed records from your employment of contracted workers, including reasons for determinations and fees paid.

If you’re the fee-payer, or the party paying the employee, limited company or other intermediary, you need to deduct and pay tax and NI contributions to HMRC.

If you’re struggling to make sense of the new rules, DNS can help. Contact us today to request a callback from one of our specialists.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.