The off-payroll working rules will apply to contractors working through personal service companies (PSC) for certain large private entities from 6 April 2021. Those who only offer their services to ‘small’ private businesses will see no change in their working relationship with their clients.
The first step to check compliance with the off-payroll working regime is to understand which engagers must apply the IR35 tests to their relationships with contractors. These engagers are those of any size operating in the public sector (since April 2017), and those which are classified as ‘large’ or ‘medium-sized’ operating in the private sector.
The size of the entity can be found by checking its accounts filed at Companies House. Large or medium sized entities meet at least two of these three thresholds:
- annual turnover of more than £10.2 million
- balance sheet total of more than £5.1 million
- more than 50 employees
Where the engager is a partnership or charity the same size test is used. The ICAEW Tax Faculty Guide 03/20 provides more details on how to check published accounts and use the consecutive years test to determine the size of the entity.
The private sector off-payroll rules only apply to work performed after 5 April 2021, not to all contractor invoices paid after that date, which was originally to be the case.
HMRC’s policy briefing issued on 15 February 2021 is addressed to the engagers, deemed employers and other agencies in the supply chain. The engager must determine the employment status of the contractor, but it is the entity that pays the PSC which is legally responsible for deducting and paying over PAYE and NIC due on the contractor’s fee.
HMRC has set up a specialist team to help engagers and agencies to understand the off-payroll working rules. It has said it won’t impose penalties in the first 12 months where the engager has taken reasonable care to apply the rules correctly. However, HMRC will impose penalties where the engager or other entity in the chain has deliberately not applied the new rules.
Individual contractors have little power under off-payroll working rules, other than to ask for a review of the status determination made by the engager.Written by the Tax Advice Network