Changes to off-payroll working (IR35) for intermediaries and contractors – April 2021

September 26, 2021

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What may be the IR35?

IR35 is a algorithm that make sure workers, who'd have been a worker when they were providing their services directly to the customer, pay broadly exactly the same Income Tax and National Insurance contributions as employees.

The client may be the organisation who is or is going to be finding the services of a contractor.

How the off-payroll working rules are applied can change on 6 April 2021

Before 6 April 2021, if your worker provides services to a client due to you in the:

public sector, the customer must decide your employment status
private sector, you must decide your worker's status

From 6 April 2021, all public sector clients and medium or large-sized private sector clients is going to be responsible for deciding your worker's employment status. This includes some charities and third sector organisations.

Under the alterations from 6 April 2021, responsibility for undertaking employment status assessments will become down to the entity using the services of the worker, whilst the responsibility for operating PAYE withholding will be that of the entity make payment on personal service companies (PSC).

The changes towards the off-payroll rules were because of come into impact on 6 April 2021. However, due to the effects of the coronavirus pandemic the alterations were delayed until 6 April 2021. The delay is to help businesses and people cope with the economical impact of coronavirus.

What the changes mean

If your worker provides services to a public sector client, or perhaps a medium or large-sized private sector client, they:

should have an employment status determination from the client, along with the reasons behind that determination
will have the ability to dispute the determination given to them if they disagree with it

Different rules apply if your worker:

does not have an employment status determination in the client
provides services to small clients in the private sector

If your worker doesn't get a work status determination

This might be since they're providing services to a small-sized client in the private sector, as the rules aren't changing of these clients. Your worker can ask for confirmation of the client's size and also the client will have 45 days to respond.

If the client confirms it's a small-sized organisation, the intermediary will be responsible for managing your worker's status to see if the off-payroll working rules apply.

Your responsibilities from 6 April 2021

Income Tax and National Insurance

If your worker provides services to a small private or voluntary sector organisation and the off-payroll working rules apply, the worker's intermediary is going to be responsible for deducting Tax and National Insurance contributions from your worker's fees and paying them to HMRC.

The deemed employer will become responsible for deducting Tax and employee National Insurance contributions and paying them to HMRC, in addition to paying employer National Insurance contributions and Apprenticeship Levy, if applicable, if both:

a public authority, medium-sized or large-sized client helps make the status determination
the off-payroll working rules apply

Paying your worker

Your income for your worker's services will have already had Income Tax and National Insurance contributions deducted from them if both:

your worker provides services to a public authority in order to a medium or large-sized private sector client
the off-payroll working rules apply

This implies that whenever you spend the money for worker, they do not need to pay Tax and National Insurance contributions again on those fees.

You can perform this by either paying it as:

a salary using your payroll – but don't deduct Tax or National Insurance contributions
dividends – these do not need to be recorded on your worker's Self-Assessment

As the amounts have already been treated as employment income doing it this way will avoid any double payment of Income Tax or National Insurance contributions.

What to complete in case your worker disagrees using the determination

The client have to research your worker's employment status and when the off-payroll working rules apply. The customer must then inform your worker their determination and also the reasons for it.

If your worker disagrees, they'll need to:

give details of the use status determination they disagree with
give their causes of disagreeing
keep copies of any records about disagreements

A disagreement could be raised until the last payment is perfect for the worker's services.

The client may have 45 days from the date of receiving the worker's disagreement to respond. In that time the fee-payer should still apply the rules in line with the client's original determination.

If the employment status determination hasn't changed, the customer will need to inform your worker.

If the employment status determination is different, the customer will need to: