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13 February 2021

IR35 // 6th April, 2021: Changes to off-payroll working for clients

The changes to the off-payroll rules were due to come into effect on 6 April, 2020, but were postponed until April, 2021, in response to the coronavirus (COVID-19) pandemic.

What’s changing?

Some rules already apply to public sector clients but from 6 April, 2021, all public authorities and medium and large sized clients will be responsible for deciding the employment status of workers (contractors).

Does it affect me?
If you meet two or more of the following conditions then, yes, it does:

  • you have an annual turnover of more than £10.2 million
  • you have a balance sheet total (assets in your company’s balance sheet before deducting any liabilities) of more than £5.1 million
  • you have more than 50 employees

What is the simplified test?

A simplified test applies to you if you have an annual turnover of more than £10.2 million and are not:

  • a company
  • a limited liability partnership
  • an unregistered company
  • an overseas company

What happens if your company is connected and associated with companies?

If the parent of a group is medium or large, their subsidiaries will also have to apply the off-payroll working rules.

When you need to start applying the rules
Public sector clients
You must continue to apply the rules when the changes come into force on 6 April, 2021, but there are further actions for which you will now be responsible (click here).

Private sector clients
If you meet the simplified test conditions, you must start applying the rules when the changes come into force on 6 April, 2021.

If you use the simplified test to determine your size, you must apply the rules from the start of the tax year following the end of the calendar year when you met the conditions.

What you need to do as a client

You’ll need to decide the employment status of every worker who operates through their own intermediary (limited company), even if they are provided through an agency and use a Status Determination Statement (SDS).

An SDS must:

  • be passed to the worker and the person, or organisation, with whom you contract
  • give your conclusion and the reasons to support it

You’ll also need to:

  • make sure you keep detailed records of your employment status determinations
  • have processes in place to deal with any disagreements which arise from your determination
  • confirm the size of your organisation if asked by the person, or organisation, with whom you contract, or by the worker

If you are also the fee payer and the off-payroll working rules apply, you will need to deduct and pay tax and National Insurance contributions to HMRC. The fee payer is the party paying the worker, limited company or other intermediary.

You can use the Check Employment Status for Tax service to help you decide if the off-payroll working rules apply.

Small-sized private sector clients
If you’re a small-sized client in the private sector, you do not have to decide the employment status of your workers.

However, you must confirm your size if asked by the person, or organisation, with whom you contract, or by the worker. This allows consideration on all parts to be made to establish which rules need to be applied.

Who to tell about your determination
Whether your determination shows that the off-payroll working rules will apply or not, from 6 April, 2021, you must tell the worker and the agency, or other organisations, with whom you contract, your determination and the reasons for your determination.

You will remain responsible for deducting tax and National Insurance until you have communicated your determination and communicated this, along with the reasons. You are also responsible for ensuring that the rules continue to apply should they  change.

What happens if there is a disagreement with the determination?
A worker, or deemed employer, may disagree with the employment status determination you have reached. It is important that you have a process in place, prior to 6 April, to handle such disagreements.

If this happens you will need to:

  • consider the reasons for the disagreement and decide whether to maintain the determination
  • you must provide a response within 45 days of receiving notification (failure to respond within 45 days means you will become responsible for the worker’s tax and NI contributions)
  • during this time, you should continue to apply the rules in line with your original determination
  • keep a record of your determinations and the reasons for them and confirm from which date your determination is valid