The new Off-Payroll Working Rules (the 'New Rules') will come into effect from 6 April 2021. Organisations engaging the services of workers through intermediaries both directly as well as through agencies, will have greater administrative and financial burdens under the New Rules. We can guide you through the changes and the steps you should follow to take account of them.
The current state of play
The New Rules were due to take effect from 6 April 2020. However, on 17 March, the Government announced that the changes would be delayed by one year as part of a package of measures to ease pressure on businesses in light of the coronavirus outbreak.
The Government has, however, made it clear that this is a delay and not a cancellation of the New Rules which have been enacted and will now apply from 6 April 2021. Many companies have already planned or made changes to the way they engage contractors.
The New Rules in a nutshell
In summary, the New Rules will affect fee payments made in respect of workers who provide their services through intermediaries such as personal service companies (PSCs) and will apply to payments for services performed from 6 April 2021.
Essentially, clients engaging such intermediaries will need to decide whether, if you ignored the existence of the intermediary, the worker would be regarded as their direct employee (or office holder) for income tax purposes. If they would, then the client (or the agency paying the intermediary if different) must deduct income tax and NICs from the fees paid to the intermediary and account for employers' NICs (and apprenticeship levy if relevant) as if the fees were payments of salary. The rules are an extension of the existing tax regime known as IR35 under which the intermediary (rather than the end client) decides the status of the worker and accounts for any tax and NICs due. In response to concerns that many intermediaries were not complying with their obligations under IR35, in 2017 the Government changed the rules for public sector clients by moving responsibility for determining status and accounting for tax from the intermediary to the client. The New Rules will extend the public sector changes to medium and large clients in the private sector and make additional modifications. IR35 will continue to apply to intermediaries that provide their services to private sector clients that are small or have no UK connection in a tax year.
1 This guide sets out the New Rules by reference to the draft legislation and guidance available at the time of writing. We do not expect these to change fundamentally but it is possible that the final rules will contain some modifications.
When do the New Rules apply?
The New Rules only apply to payments made for services carried out on or after 6 April 2021. If a payment is made for services provided both before and after 6 April 2021 there are transitional provisions that allow a 'just and reasonable' apportionment to be made. The New Rules will apply to the part of the payment that can be reasonably seen to be for the services provided on or after 6 April 2021.
For guidance on how to apply the New Rules please read our companion article, 'The New Off-Payroll Working Rules: What do you have to do?'.