Off Payroll Working / IR35

The public sector off-payroll working rules were set to be extended to the private sector in April 2020 but were deferred by 12 months due to Covid-19. Whilst we are still in the grip of the pandemic there is no indication that the implementation will be deferred again, and we need to be prepared for changes which come into effect shortly.

Who is affected?

Any private sector medium or large business who engages an individual through an intermediary, such as a personal service company – referred to as end clients in the legislation.

End clients who are small businesses are exempted from the new rules. You are small if you meet two of the following three criteria; turnover of less than £10.2 million; balance sheet total of less than £5.1 million; and less than 50 employees.

Small businesses who engage individuals through an intermediary will continue to apply the IR35 rules. This means that it is the individual worker’s personal service company will be responsible for determining whether PAYE applies under IR35 rules, as is the case now.

Many personal service companies which are small will be affected by the new rules as their clients may be medium or large businesses and under the new rules will have to apply PAYE to their income.

It is the size of the end client that determines which set of rules applies.

What is changing?

From 6 April 2021 medium and large private sector organisations (the end client) need to apply the off payroll working rules in the same way as the public sector. They will need to assess the status of any individual who provides their personal services through an intermediary, such as their own personal service company.

To make an assessment of an individual’s status you pretend that the intermediary company is not there and look at the terms under which the individual works for you to decide their status as either ‘employed’ or ‘selfemployed’. If the status is ‘employed’ you will need to operate PAYE on any payments to their personal service company, for work done.

Summary

This is just a quick summary of the changes. Whether you are an individual with your own personal service company, or an end client who uses contractors, you need to be aware of the new arrangements and apply them from April 2021. If you haven’t already done so it is worth starting a dialogue with your contractors/ clients to prevent any business disruption.