Work performed by contractors for large or medium sized businesses in the private sector from 6 April 2021 may fall under the off-payroll working rules. Work performed before this date and paid for afterwards does not fall under the off-payroll rules.
The contractor can ask their engager to confirm if it is required to apply the off-payroll rules on the basis of it’s size (not a small business). The engager is required to respond to the contractor’s request within 45 days (see ESM10011A).
The engager must decide if the off-payroll rules bite for a particular contract, and thus if the contractor’s invoices must have PAYE and NIC deducted before payment. This decision needs to be communicated to the contractor and all agencies in the chain by way of a status determination statement (SDS).
If the SDS concludes the contractor should be treated as a deemed employee for tax purposes, they should complete a new starter checklist. However, the questions on that checklist regarding student loan repayments should be ignored. The engager should not deduct student loan repayments from the contractor’s invoiced amount.
The contractor is not entitled to employee benefits or rights as a deemed employee. For example, the contractor does not have to be enrolled in the workplace pension, and is not entitled to statutory payments (SMP, SSP etc) from the engager. Where the contractor’s own personal service company (PSC) pays them a wage, this may entitle them to statutory payments.
The PSC needs to account for the income received with tax deducted under PAYE by the fee payer. However, when preparing the corporation tax computations of the PSC, treat the fee note (which has had PAYE deducted) as not taxable. When the deemed employment income is received by the PSC, treat it as not subject to CT and the tax and NIC withheld as not allowable.
Instead, the contractor is subjected to income tax and Class 1 NIC on the deemed employment income when it is paid to the PSC by the fee payer, as if it had been paid to the contractor as actual salary (see guidance in ESM10035).
Written by the Tax Advice Network