April 2020 changes to off-payroll working for clients
Understand and prepare for changes to the off-payroll working rules (IR35) if you are a client receiving services from a worker through their intermediary.
Off-payroll working rules change on 6 April 2021 and are applied differently. From this date, all public authorities and medium and large sized clients will be responsible for deciding the employment status of workers.
Who the rules apply to
Some rules already apply to all public sector clients, but from 6 April 2021 medium and large-sized private sector clients also need to apply them. The private sector includes third sector organisations, such as some charities.
The rules apply to all public sector clients and private sector companies that meet 2 or more of the following conditions:
- you have an annual turnover of more than £10.2 million
- you have a balance sheet total of more than £5.1 million
- you have more than 50 employees
This is in line with the small companies’ regime.
A simplified test also applies to some clients and considers annual turnover. You must apply the rules if you have an annual turnover of more than £10.2 million and are not:
- a company
- a limited liability partnership
- an unregistered company
- an overseas company
There are also rules which cover connected and associated companies. If the parent of a group is medium or large, their subsidiaries will also have to apply the off-payroll working rules.
When you need to start applying the rules
Private sector clients
If you meet the conditions above you must start applying the rules when the changes come into force on 6 April 2021.
If you use the simplified test to determine your size, you must apply the rules from the start of the tax year following the end of the calendar year when you met the conditions.
If you do not use the simplified test and do not meet the conditions on 6 April 2021, your circumstances may later change. If you then meet the conditions for 2 consecutive years, the date you need to apply the rules will be different. You must apply the rules from the start of the tax year following the end of the filing period for the second financial year when you met the conditions.
What you need to do as a client
You’ll need to decide the employment status of a worker, you must do this for every contract you agree with an agency or worker. You’ll need to:
- pass your determination and the reasons for the determination to the worker and the person or organisation you contract with
- make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid
- have processes in place to deal with any disagreements that arise from your determination
If you are also the fee-payer and the off-payroll working rules apply, you will need to deduct and pay tax and National Insurance contributions to HMRC.
Small-sized clients in the private sector will not have to decide the employment status of their workers. This will remain the responsibility of the worker’s intermediary.
Taking reasonable care when making a determination
You must take reasonable care when you make a determination about the employment status of a worker.
Failure to do so will result in the worker’s tax and National Insurance contributions becoming your responsibility.
Who to tell about your determination
From 6 April 2021, you must provide the worker and the agency, or other organisation you contract with, your determination. Do this whether your determination shows that the off-payroll working rules will apply or not.
You must provide reasons for your determination.
You will hold the liability for tax and National Insurance contributions until you tell the worker, and the person you contract with, of your determination and the reasons for it.
A status determination statement issued before 6 April 2021 is valid under the new rules, if it contains the reasons for the conclusion reached. If the working practices of the engagement change or you negotiate a new contract with the worker, you need to make sure that you re-check the rules to see if they still apply.
What to do if a worker or deemed employer disagrees with your determination
A worker or the agency paying the worker’s intermediary may disagree with the employment status determination you reached.
If this happens you will need to:
- consider the reasons for disagreeing given to you by the worker or agency paying their intermediary
- decide whether to maintain the determination if you feel it is correct and give reasons why - or provide a new the determination because you feel it was wrong
- keep a record of your determinations and the reasons for them, as well as records of representations made to you
You must provide a response within 45 days of receiving notification that the worker or agency disagrees with your employment status determination. During this time you should continue to apply the rules in line with your original determination.
Tell the worker if the determination has not changed.
Tell the fee-payer and the worker if the determination has changed.
Failure to respond within 45 days will result in the worker’s tax and National Insurance contributions becoming your responsibility.
Published 22 August 2019