IR35 tax rule changes
IR35 tax rules have been in place for the public sector for a while now. Their introduction to the private sector, originally scheduled for last year, was delayed owing to the coronavirus pandemic.
By way of background, the IR35 rules provided that public authority employers who contract workers to provide services through an intermediary need to decide whether the off-payroll working rules apply. Off-payroll working rules broadly provide that workers pay the same tax and national insurance as employees of the organisation if they work through their own intermediary (such as a business they own) or would have been an employee had they provided their services directly.
Before engaging the worker, the worker’s employment status must be determined. The government status checker can be used check employment status for tax for that purpose.
From 6 April 2021, certain private sector employers (small employers are excluded) must also comply with the rules and make determinations in respect of their workers. Additionally, there are extra responsibilities for public sector employers which include:
- Completing an employment status check for every worker, whether they are engaged through their own intermediary or an agency.
- Communicating the determination using a status determination statement (SDS) which should be:
- Passed to the worker and the person or organisation engaged with; and
- Contain the reasons for reaching the determination.
The SDS can be provided before 6 April 2021.
In addition to completing and providing the SDS, public and private sector employers will need to:
- Keep detailed records of employment status determinations, including the reasons for the determination and fees paid.
- Have a process to deal with disagreements that arise from the determinations.
- Confirm the size of your organisation, if asked by the person or organisation you contract with, or the worker.
- Deduct tax and national insurance as appropriate.
Further guidance can be found here.
HMRC has also published a policy paper to say it will be taking a lighter touch in relation to penalties for those that inadvertently fail to comply with the rules, and from 6 April 2021 will seek to encourage and support compliance. The policy paper is available here.