The off-payroll working rules (the so-called “IR35 rules”) will finally come into effect for the private sector from 6 April 2021 after being deferred from 2020.
IR35 potentially applies when a worker provides their services to a client through their own limited company. For arrangements that are caught, the IR35 rules seek to ensure that they are subject to the same level of income tax and National Insurance contributions as if the worker were a direct employee of the client.
While these rules have been around for a long time, what is changing from 6 April is it is now the client’s responsibility to determine the “status” of the worker (as within or outside of IR35) and withhold payroll taxes as appropriate; This puts the onus onto big business, who typically are easier to hold to account.
As the deadline approaches and minds turn to the implementation of the new regime, we have shared some FAQs:
Do I need to provide my subcontractor with an SDS (status determination statement)?
Yes! An SDS is a statement provided by the client that identifies the worker’s status following an IR35 assessment, including the reasons for reaching this conclusion. This should be provided to the worker. If the client is not the fee payer, it should also be provided to the next party in the fee-paying chain (typically, an agency) to ensure they withhold payroll taxes accordingly and the client does not remain liable.
Do the new rules apply if my personal service company (PSC) provides services to an overseas client?
If your overseas client has no “UK connection” for a tax year, the new rules will not apply, and it remains for the PSC to determine whether the arrangement falls within IR35 and apply payroll taxes accordingly. (A client has a UK connection for a tax year if (and only if) immediately before the beginning of that tax year the client: (i) is resident in the UK; or (ii) has a permanent establishment in the UK)
The effective date for the new rules is 6 April – does this mean the rules apply for work undertaken from 6 April or for payments made from 6 April?
The new rules will apply to payments made on or after 6 April 2021 only where the services were also provided on or after 6 April 2021. Therefore, if a payment is made on 30 April 2021 and the services were provided from 6 April 2021 onwards, the whole payment would be within the rules.
If the services were all provided before 6 April 2021, but the payment was made on or after 6 April 2021, the payment would not be subject to the new rules.
If payment is made for services provided both before and after 6 April 2021, then a just and reasonable apportionment should be made. Therefore, the new rules would apply to the part of the payment, which can be reasonably seen to be for the worker’s services provided on or after 6 April 2021.
What is the interaction of IR35 with the Construction Industry Scheme (CIS)?
An arrangement cannot be subject to both IR35 and CIS; IR35 takes priority.
How do I calculate the amount of payroll deduction?
If a contractor is determined to fall within the IR35 rules:
- workers should be added to payroll as any other starter would be. They should be issued a starter checklist so they can provide the deemed employer with the information it needs to run payroll
- the declaration the worker chooses on the starter checklist will determine their tax code. Usually, this will be declaration C as the worker will already have primary employment with their intermediary. This would put them on tax code BR. 0T week 1 / month 1 would apply if the worker does not return the starter checklist. HMRC can then issue another tax code if it is required
I’m a worker –if the contractual arrangement with my client is deemed to fall within IR35, will I be taxed twice?
No. There are provisions within the legislation that allow for relief at the corporate level (i.e. the client’s net income receipt in the PSC is non-taxable). And also, for offset of tax already suffered against extraction of profits from the PSC.
This post was written by Sarah Howarth, a tax specialist at Price Bailey. If you require any questions relating to IR35, please contact Sarah on the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.