Off-payroll working rules (IR35)

It has been over one year since the off payroll working rules (IR35) changed in the private and voluntary sectors.

Some organisations who engage contractors in those sectors who didn’t need to apply the rules for 2021-22 as they did not meet the size conditions — may now need to apply the rules.

Ensure you check the Employment Status Manual (https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm10006) for whether the rules apply to your business every year.

This is particularly true if you have:

• become a newly formed business
• been bought by another organisation
• grown in size over the last few years 

If you are new to the rules, you should find it helpful to read the steps needed to implement off-payroll working rules (https://www.gov.uk/guidance/prepare-for-changes-to-the-off-payroll-working-rules-ir35).

Off-Payroll Working – Will HMRC accept CEST result?

Since 6 April 2021 large and medium-sized organisations, based on the Companies Act criteria, have had to determine whether or not a worker supplying his services via their own personal service company would be treated as an employee if directly engaged. This replaced the IR35 rules for these larger organisations.

HMRC suggest organisations use their Check Employment Status for Tax (CEST) tool on their website to check the worker’s status, although that is not obligatory. The tool is an interactive database of questions and will normally provide a ruling after 15 to 20 questions depending on the answers given about the contractual relationship.

See: Check employment status for tax - GOV.UK https://www.gov.uk/guidance/check-employment-status-for-tax

HMRC have recently confirmed that they will be bound by the result of the software provided the information is accurate and it is used in accordance with their guidance.

See: ESM11010 - Employment Status Manual - HMRC internal manual - GOV.UK https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm11010

HMRC have also stated that they will not stand by results achieved through contrived arrangements that have been deliberately created or designed to get a particular outcome. They would see that as deliberate non-compliance, and potentially levy financial penalties.

Note that the end-user organisation is required to issue a Status Determination Statement to the worker with a copy to any agency to be passed to any fee payer in the labour supply chain making payments to the personal service company.

HMRC urge businesses to carry out due diligence into their labour supply chain

HMRC is warning organisations about the use of mini umbrella companies in the labour supply chain and the need to carry out due diligence to protect the organisation from financial and reputational damage.

Without a careful review of their labour supply chain the end user could find themselves liable for tax, national insurance and VAT avoided by entities inserted in the labour supply chain between them as end user and the workers engaged via the umbrella structure. This was highlighted in a recent BBC programme which identified 48,000 umbrella companies set up to exploit the £4,000 employment allowance. These companies were set up to supply workers to the NHS Covid testing programme outsourced to G4S. Similar arrangements continue to be marketed to allegedly sidestep the new “off-payroll” working rules.

If you use agency or temporary workers or are an agency providing workers, you or one of the other parties in the labour supply chain may need to operate PAYE on the workers’ earnings – you should check who needs to do this. HMRC have provided the following advice on due diligence procedures:

See: Advice on applying supply chain due diligence principles to assure your labour supply chains - https://www.gov.uk/government/publications/use-of-labour-providers/advice-on-applying-supply-chain-due-diligence-principles-to-assure-your-labour-supply-chains 

What are the risks?

HMRC can ask you to account for unpaid tax and National Insurance contributions. For example, if an offshore agency supplies you with workers and they do not account for tax and National Insurance contributions payable through the PAYE system, then you may have to.

To increase compliance with the off-payroll working rules in the private and voluntary sectors, organisations receiving an individual’s services (where the individual works through their own intermediary, most commonly their own limited company) are now responsible for assessing that individual’s employment status and determining whether the rules apply from April 2021. This reform already applies in the public sector where an individual works through their own intermediary.

The off-payroll working reform from April 2021 will also provide HMRC with the power to recover unpaid tax and National Insurance contributions from you, or the agency you contract with in some circumstances – if, for example, a UK-based agency lower down in your labour supply chain fails to account for tax and National Insurance contributions payable through the PAYE system under the off-payroll working rules and there is no realistic prospect of recovering the tax and National Insurance contributions from them. This change will apply to the public, private and voluntary sectors.

See: 10 things about due diligence: supply chain assurance - https://www.gov.uk/government/publications/use-of-labour-providers/10-things-about-due-diligence-supply-chain-assurance

1st April 2021 – Hillmans Weekly Update

Below I have summarised all the main tax related updates we have seen this week.

• Finishing tax year 2020-21 and preparing for 2021-22
• Consultations Issued on Tax Day by Treasury
• More Details on the New Super-Deduction for Equipment
• Prepare for tax changes if you engage or supply contractors – Off-payroll working rules (IR35)

If you have any queries about this week’s content, or if you need any assistance please do not hesitate to contact me.

Just a courtesy note that our office will be closed for the Easter weekend, closing at 5pm on Thursday 1st April and reopening at 9am on Tuesday 6th April.

I hope you have a great Easter.

Stay safe and well.

Cheers,

Steve

Steven Hillman BSc (Hons) ACA
Chartered Accountant
Tel: 01934 444100

5th March 2021 – Hillmans Weekly Update

Below I have summarised all the main tax related updates we have seen this week.

• Budget 2021 Analysis

• HMRC Start Checking Self-Employment Grant Claims

• Buy New Equipment Before 6 April?

• Get Ready for The "The Off-Payroll" Working Rule

• New Reverse Charge VAT Rules for Construction Sector Started

If you have any queries about this week’s content, or if you need any assistance please do not hesitate to contact me.

I hope you have a good weekend. 

Stay safe and well. 

Cheers,

Steve

Steven Hillman BSc (Hons) ACA

Chartered Accountant

Tel: 01934 444100

Get Ready for The "The Off-Payroll" Working Rule

Where large or medium-sized organisations are paying workers via personal service companies (PSC) or agencies they will need to operate new procedures from 6 April 2021.

The new rules will apply to partnerships, LLPs and larger charities as well as limited companies. Only those organisations that would be classed as “small” under the Companies Act criteria will be outside of the new rules.

From 6 April 2021 the end user organisation will be required to determine whether or not the worker would be an employee of the organisation if directly engaged. That determination will need to be communicated to the worker and the agency supplying the worker, if relevant, and is referred to as a Status Determination Statement. The determination notifies the fee-payer that income tax and national insurance is to be deducted from payments to the PSC.

HMRC recommend that the end user organisation should use the Check Employment Status for Tax (CEST) software on the HMRC website to carry out the determination but that isn’t obligatory.

WHAT IF THE WORKER DISAGREES?

Where the worker disagrees with the employment status determination they should contact the end user straight away setting out their grounds for disagreement.

The end user must provide a response within 45 days of receiving the disagreement. During this time tax should continue to be deducted in line with the original determination.

WOULD THE WORKER BE BETTER OFF AN EMPLOYEE?

The new “off-payroll” working rules mean that the worker pays the same amount of tax and national insurance as if they were an employee, but without the same employment rights. 

Where possible the worker should consider renegotiating a higher rate of pay to compensate them for the additional tax and national insurance deducted. They may also need to consider what they do with their personal service company going forward.

END USERS CAN BE LIABLE FOR THE TAX NOT DEDUCTED

Where the agency or fee payer lower down the labour supply chain fails to deduct tax from payments to the worker’s company the liability passes up the supply chain such that the end user may be liable. This rule was introduced as HMRC have allegedly been defrauded by some structures set up by employment agencies.

Workers need to be aware of a number of schemes under investigation by HMRC.

End users should carry out due diligence and consider the wording of contracts with agencies supplying workers via personal service companies.

CURRENT IR35 RULES STILL APPLY WHERE END USER IS “SMALL”

The new “off-payroll” rules do not apply where the end user organisation is “small” under the Companies Act rules. Thus, the current IR35 rules will continue to apply, with the onus on the worker’s personal service company to determine whether the worker would have been an employee if directly engaged.

5th February 2021 – Hillmans Weekly Update

Below I have summarised all the main tax related updates we have seen this week.

• Budget Day is 3rd March
• Pension Tax Relief Under the Spotlight
• How trading conditions affect eligibility for the Self-Employment Grant
• Coronavirus Job Retention Scheme has been extended until 30 April 2021
• Get Ready For New Off-Payroll Working Rules (IR35)

If you have any queries about this week’s content, or if you need any assistance please do not hesitate to contact me.

I hope you have a good weekend.

Stay safe and well.

Cheers,

Steve

Steven Hillman BSc (Hons) ACA
Chartered Accountant
Tel: 01934 444100

Get Ready For New Off-Payroll Working Rules (IR35)

This time last year businesses were preparing for important changes to the rules where workers supply their services via their own personal service companies. The start date was then deferred from 6 April 2020 to 6 April 2021.

The new rules are scheduled to apply to large and medium-sized businesses as defined by the Companies Act. Those businesses will be required to consider whether or not the worker would be regarded as an employee if directly engaged and so deduct tax and national insurance from payments as if they were an employee. This change does not apply where the end user is a small business under the Companies Act rules, where the current IR35 rules will continue to apply.

Thus, small organisations will not yet be required to consider the status of the worker or deduct tax.

Please contact us if you are affected by these changes as we may be able to help you with the determination of your workers’ employment status. If you are a worker supplying your services through your own company, we will also be able to advise you on the implications of these changes.