From 6 April 2021, medium and large employers are required to determine the employment status of contractors following major changes to the off-payroll working rules. Here we reveal all about the new rules, known more commonly as IR35.
What are the off-payroll working rules?
Any contractor who works as if they are an employee, but who is paid through a limited company, should broadly pay the same Income Tax and National Insurance Contributions (NICs) as other employees. This, in summary, is IR35, or the off-payroll working rules. It is legislation that has been around for some time, but that is subject to reform as of 6 April 2021.
How has IR35 changed?
It has always been the responsibility of the contractor to determine their employment status. However, from 6 April 2021, the responsibility for determining whether IR35 rules apply switches to the employer, as does liability for any underpaid tax and penalties connected with getting things wrong.
Who does the new legislation apply to?
Only medium and large-sized businesses, and public sector authorities, are required to determine the employment status of contractors.
The new IR35 legislation does not apply to employers who do not meet at least two of the following: a turnover of £10.2 million or more; a balance sheet total of £5.1 million or more; and 50 employees or more.
It is reckoned that in the region of 60,000 businesses, 20,000 agencies and 500,000 contractors will be affected by the new legislation.
What happens if employers do not comply with the new IR35 rules?
Although HMRC is operating a ‘light touch’ approach to penalties within the first 12 months of introducing the new off-payroll working rules, businesses may still be fined if ‘deliberate non-compliance’ can be proved.
The latest guidance states: “You will not have to pay penalties for inaccuracies relating to the off-payroll working rules in the first 12 months of the operation of the new rules, unless there’s evidence of deliberate non-compliance.”
It adds: “If you realise you have made a mistake in applying the off-payroll working rules, you should tell us about it at the earliest opportunity. We can work with you to put it right, whether that means paying unpaid tax or refunding overpaid tax.”
Need help complying with your employer duties?
Here at Office Assistants, we have been helping businesses stay compliant with changing legislation for many years. If you are struggling to keep up with your accounting or payroll duties, we are here to help. Please get in touch to discuss how we can take the strain out of your working day.