The off-payroll working rules can be applied if a worker (also known as a contractor) provides services through their own limited company or other intermediaries to the clients. An intermediary is usually the worker’s own personal service company, but could also be any of these:
- an individual
- personal service company
- a partnership
This article will highlight some important IR35 changes introduced in April 2021 for all the medium and large-sized clients and public authorities outside the public sector who are responsible for deciding if the rules apply. So, let’s have a look at them:
IR35 Changes
The Off-payroll rules are specially designed to make sure that all the individuals are working as employees but through their own limited company, aka, personal service company or PSC, or other intermediaries, pay the same National Insurance Contributions (NICs) and Income tax as other individuals who are directly employed. And, these rules are known as “IR35.” Back this year, in April 2021, some changes were made to the off-payroll working rules. These changes apply to all the payments made on or after April 6, 2021, and the services provided on or after this particular date in large or medium-sized client organisations outside the public sector.
HRMC will Focus on Support Organisations in Complying changes to the Off-Payroll Working Rules Rather Than Investigating Past Arrangements of The Contractors
HRMC would not open any new compliance enquiry into contractors’ returns for the tax years before April 6, 2021, in the following circumstances:
- if a contractor changes its way to work from invoicing services through intermediary entities to now being paid through clients’ payrolls
- if a customer decides that a contractor is within the required off-payroll working rules (IR35)
- if a contractor ends contracts due to disagreement with their client decision on the status
The Way You Pay Tax Has Been Changed (if you contract with large or medium organisations outside the public sector)
From April 6, 2021, to onwards, your clients will be responsible for deciding your employment status and paying the tax for the services you provide them. However, clients need to provide you with a ‘Status Determination Statement’ if the rules are applied, explaining and setting out their decisions. However, if your clients determine that your contract lies within the off-payroll working rules (IR35), and so you are one of the deemed employees for tax purposes. In that case, the agency or clients who pay your fees are going to be responsible for deducting Employee NICs and Income Tax before they pay you.
Disputing Decisions
If you disagree with your clients’ decisions for employment status for tax, then you are allowed to raise all your concerns through your clients’ status disagreement procedure. However, all clients need to introduce a process from April 2021 to enable you to disagree with their decisions.
Once the client’s disagreement process is completed, if you doubt that you paid a lot for Income Taxes and NICs, then you can perfectly follow the existing National Insurance and routine Self-Assessment processes. Also, HMRC may ask you for further records and documents you have relied on to conclude that your repayment is due.
Continue Working Through A Limited Company
These changes do not affect as such if you work through your own personal service company, aka PSC. However, the way NICs and Income taxes are calculated and paid can be changed for some contractors; however, some clients may also change the way they want to engage with you and other contractors they are dealing with. Also, if you do not work through your company, then decide what to do with it, such as its closure, etc.
Contractors Are Not Always Self-Employed
Whether you are employed or self-employed, your employment status to pay tax is not a matter of choice. However, it depends upon your working practices and the terms and conditions of the contractor you are dealing with. The fact is supplying your services through your own limited company is not essentially relevant to whether you are employed or self-employed for paying taxes.
For instance, if you are working for the same clients, following their procedures and policies, and at their premises, you can’t send a substitute on your own to work on your behalf. This is because you require permission to have some additional work elsewhere; you are likely to resemble employees. Also, these rules apply to employment for tax purposes, not for employment status for their rights.
Shield Labour Solutions Ltd
SLS Pay is a part of the well-renowned Shield Group with an outstanding reputation for offering payroll for contracts from multiple sectors on time every week. With more than 30 years of experience and vast knowledge in the temporary and contractor markets, Shield Labour Solutions leads the way in paying workers from all sectors using the latest and up-to-date legislation. The company offers you a myriad of compliant payroll models, helping your organisations to pay your workers more smoothly according to their pay rate, job role, and SDC status. So, reach out to them to consult with the market-leading experts today!