Changes to off-payroll working rules come into effect on 6 April 2021. FPM Senior Manager Ruth Emery explains how this affects companies receiving services from off-payroll workers.
Off-payroll working rules were originally supposed to change in April 2020, but the Government deferred the plans for a year because of the spread of the COVID-19 pandemic. With the new rules now coming into effect on 6 April, employers receiving services from off-payroll workers need to ensure they are ready.
What is off payroll working?
For HMRC purposes, off payroll working, also known as IR35, is where a company receives a service from an individual (such as a worker or contractor) through an intermediary (such as a limited company).
What will change when the new rules come into effect?
Up to now, where an individual worker or contractor provided services to an entity through a Personal Service Company (PSC), the individual was obliged to assess and deduct any applicable PAYE/NIC. From 6 April 2021, however, the obligation to assess and deduct PAYE/NIC transfers from the PSC to the end-user. The new rules apply where the individual worker or contractor could be deemed to have an employment relationship with the end-user were it not for the intermediary or PSC.
What businesses are affected?
Public sector entities and with medium and large private sector companies are affected by the new rules if they meet two or more of the following conditions
- annual turnover of more than £10.2 million,
- balance sheet total (ie assets before deducting liabilities) of more than £5.1 million
- more than 50 employees
A simplified test applies to entities with an annual turnover of more than £10.2 million that are not:
- a company
- a limited liability partnership
- an unregistered company
- an overseas company
These entities are also obliged to apply the new rules.
While small businesses are exempt from the new rules, they must confirm that they qualify for exemption within 45 days if requested to do so by an individual contractor or PSC.
A business is deemed to be small if, in its two most recent consecutive financial years, it satisfies two or more of the following requirements:
- It has an annual turnover not exceeding £10.2m,
- It has a balance sheet total of not more than £5.1m,
- It had an average of no more than 50 employees for the company’s financial year.
If the relevant criteria are satisfied, the small business exemption applies. This means the individual worker or intermediary must continue to assess and deduct PAYE/NIC as was the case prior to the introduction of the new rules.
In a group situation, the group as a whole must meet the criteria. This is to prevent medium or large-sized companies from establishing subsidiaries to avoid complying with IR35 rules.