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New Off-Payroll Rules for 2021

16/12/2020

New off-payroll rules will come into force from 6 April 2021. We have previously written about this change, but in this blog post we will look again at the rules and how they can apply if a worker provides his or her services through their own personal service limited liability company or another type of intermediary to the end-user client.

Why is HMRC changing off-payroll rules?

The HMRC has released information online which states that the off-payroll rules will make sure those workers, who would have been an employee if they were providing their services directly to end-user clients, pay broadly the same tax and National Insurance contributions as employees.

What HMRC have not said is that off-payroll workers do not qualify for the normal employee employment rights, under the Employment Act (but that’s for another time!).

What is an ‘end user client’?

The end-user client is the organisation who is or will be receiving the services of the worker. Only medium to large end-users are governed by the new off-payroll rules. Medium to large end-users are defined as 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 with net assets in total of more than £5.1 million.
• You have more than 50 employees.
• If the end user is not a company then they have to apply for the off-payroll rules if they have a turnover of more than £10.2 million.

The medium to large end-user client will be responsible for determining if the off-payroll working rules apply (i.e. that end-user client will be responsible for any Income Tax /NIC and therefore is required to carry out the employment status test for all of its workers that operate via their own personal service limited liability company or via an intermediary such as agency or umbrella company).

Once the end-user client has made its determination it must then advise the worker and any intermediary fee payer of the decision by using the Status Determination Statement (SDS) as shown on the HMRC website.

Check Employment Status for Tax (CEST)

To assist the end-user client in their employment status review HMRC have published a Check Employment Status for Tax (CEST). The test asks questions which if answered accurately determine if the end-user client worker is operating under a contract of service (employment) or a contract for service. However, some 20% of the HMRC CEST results end in an ‘undecided result’ – which is no good to anybody!

The House of Lords Economic Affairs Finance Bill Sub Committee that looked at the IR35 rules and the HMRC CEST back in April 2020. They stated that it considered the IR35 rules to be ‘unfair’ in not linking the requirement to apply employment Income Tax and NIC to workers’ rights under the Employment Acts. The Committee also had serious reservations regarding the HMRC CEST tool, particularly that it appeared to ignore the recent tax case decisions saying that mutuality of obligations (or as it is known MOO) had a more important influence on whether or not there is a contract of services (employment).

So where are we?

Well, currently the off-payroll rules for medium to large businesses within the private sector still come into effect from 6 April 2021. Medium to large end-user businesses affected need to review their workers/suppliers to try and establish if they are engaged under a contract of services (employment) or not.

If the medium to large end-user considers that a contract of service (employment) does apply then they must advise via the SDS that employment status to their worker and any intermediary fee payer. Until the SDS is issued the end-user must apply the off-payroll for the private sector rules to all payments to the worker after 6 April 2020.

Once the SDS has been issued it is the fee payer (could be the end-user as the fee payer or an intermediary as the fee payer) that is responsible for deducting from those payments to the worker the PAYE/employee NIC and pay those amounts to HMRC, together with the additional employer’s NIC.

Small Private Sector Companies

From 6 April 2021, all small private sector entities remain as they are now under the IR35 rules. This states that if a worker operates via an intermediary, such as an agency or his or her own limited liability service company, then the worker is responsible for completing the employment status test and deciding if there is a contract of services (employment) or not.

If there is an employment contract then it is the worker who needs to apply the IR35 PAYE/NIC rules via a payroll scheme registered with HMRC.

HaesCooper can help you with your UK fiscal requirements, be that compliance or planning whether you are a small, medium or large business. Contact us to learn more.