Off-payroll working doesn’t apply to every business or worker, but it may apply to your service or the relationship that you have with a contractor. As it’s a niche set of rules, as an end client or as a contractor, you may not be aware of the new rulings linked to IR35.
Yet, no matter how new IR35 rulings may be, it’s important to know where you stand come April 2021. Originally planned for April 2020, the new set of off-payroll working rules have been delayed, to allow for businesses and contractors to adapt, down to the pandemic.
Yet, with the economy slowly picking back up, and with a year’s grace period to plan, change is imminent for the contract sector.
Off-payroll working applies to those who offer a service through their own limited company or intermediary, where their role resembles one of an employee’s, providing consistent and contractual services.
Thus far, tax liabilities have been an independent responsibility through such a relationship. Yet through the new off-payroll working rules, those responsibilities are set to adjust, where tax and National Insurance contributions (NICs) will follow the same route as employment arrangements.
As change is set for the near future, and to secure correct tax liabilities for both clients and contractors, here’s some insight into off-payroll working, along with how the rules are changing for all applicable parties.
What is off-payroll working?
Off-payroll working is a ruling which secures appropriate tax and national insurance contributions for those who offer independent services, resembling the scope of employees.
It applies to contractors who have their own limited company or intermediary of a similar capacity, where personal services are fulfilled consistently and reliably.
Prior to April 6th, 2021, contractors have been responsible for managing all contributions, no matter their offering or size.
However, the rulings of off-payroll working have changed, to ensure that similar liabilities are secured across the contract sector and those who are employed, to offer fairness, stability and to avoid the potential use of tax evasion schemes.
However, as all contractual agreements and dynamics are different, new off-payroll working rules are set to come into play, affecting both contractors and end clients differently. As change will be imminent depending on business size, sector, and client decisions, here’s a breakdown of what to expect from off-payroll working rules.
The application of IR35 off-payroll rules
IR35 rulings will affect contractors who offer their services through a personal intermediary, clients who receive such services, and agencies who promote and secure those services.
The rules will apply if working arrangements reflect those of employed individuals, where contributions should follow the same route. With this in mind, if off-payroll working rules are applicable to your arrangement, the way that tax is paid will change, for both contractors and companies.
The decision on implementing the new rules will be down to each client, depending on how such arrangements will impact their business.
This decision will be communicated through a ‘status determination statement’ which will highlight whether contributions will be collected prior to monthly payments, or whether responsibility will remain in a contractor’s hands.
The aim of the adapted off-payroll working rules is to ensure compliance and fairness is present, which will continually be promoted by HMRC. Through such aim, the application of the ruling should be made on a per arrangement capacity, rather than a wide-spanning view.
In order to make such decisions, as end clients, it’s important to consider whether off-payroll working rules will benefit your arrangements, and as contractors, it’s important to know how such arrangements may impact your ways of working.
Changes to off-payroll working rules from April 2021
As the rules will be changing from 6th April 2021, here’s a breakdown of impacted areas within off-payroll working.
For those who fall within the non-public sector, working with medium to large organisations, clients will decide on whether the new rulings apply, based on how employment arrangements will impact their offering.
If your contract is applicable for the new off-payroll working rules, clients will be responsible for managing contributions from tax year 2021-2022.
Contracts within the non-public sector with small organisations will be responsible for such a decision, where contributions of tax and NICs, and the management of will likely remain to be the responsibility of the contractor.
Thus far, clients will be responsible for identifying and managing employment statuses, even throughout contractual agreements. This will continue to be the case through off-payroll working rules. With this in mind, little changes will be experienced by public sector contracts.
Those who are purely self-employed, on a sole trading basis will not be affected by the new off-payroll working rules. Rules will only apply to contractors who work through a limited company or an offering within a similar capacity.
Those who do contract through a limited company may be impacted by the rules, no matter whether the self-employed or employed status has been secured through their overarching company.
Decisions will be made through an employment status test, on a per case basis, to define whether rulings will be applicable in conjunction with contract terms and conditions.
The percentage of tax and NICs contributions, as of now, will not change, no matter whether off-payroll working rules apply or not. However, tax liabilities when surrounding the input of contributions will change, where applicable contracts will change the dynamic of payments.
Contracts falling under the new rules will see deductions prior to monthly invoices. Contracts falling outside of the new rules will continue to manage tax liabilities, independently.
Managing off-payroll working rules
IR35 and the new working rules can be complex to digest, especially for some unique contractual arrangements. Down to this, here at The Financial Management Centre, we’re here to support you, whether you’re a contractor, an end client or an agency.
If you’re looking for more information on employment status considerations, here’s a useful manual provided by HMRC to help decide on the application of off-payroll working rules.
Alternatively, our team is available to assist with the next steps surrounding off-payroll working, for all parties, to ensure that arrangements are compliant, fair and responsible. Contact our team for more information on managing the rules, along with the applicability of your contract.