The Government has announced the reform to the off-payroll working rules (IR35) will be delayed until 6 April 2021. This is part of additional support for businesses and individuals to deal with the economic impacts of Covid-19.
This means that for any private sector work carried out, PSCs will continue to be accountable for IR35 status determinations and responsible for paying appropriate tax until 6 April 2021.
IR35 is a piece of legislation that seeks to determine tax status for individuals working through a limited company, or a PSC as commonly known.
There are a number of tests used to determine employment status for tax.
In the Public Sector, the responsibility for determining the tax status of a worker moved from the limited company contractor to the end client in April 2017.
As of April 2021, these rules will be rolled out to the Private Sector, where the responsibility for operating the Off-Payroll legislation will sit on the organisation, agency, or other third parties engaging the worker.
It will also be mandatory to share the determinations made per Associate.
The end client will be responsible for determining the IR35 status of all Associates, whilst the fee- payer, in this case us, will be responsible for deducting the relevant Tax and National Insurance contributions at source based on the determination made.
This legislation addresses all Associates that work through a limited company. Every role you are engaged on through your limited company will need to have a ‘determination’ made in order to establish whether or not the role falls inside or outside IR35 scope.
No. This legislation does not affect or impact on Umbrella company workers in any way. Based on our experience in the Public Sector, we anticipate that some associates, working today in the Private Sector as PSC contractors, will move to umbrella employment from 2021 if their client decides that they are operating inside of IR35.
Currently, you are responsible for determining the IR35 status for your company. As of April 2021, for any assignments you are working on, the end client at the top of the supply chain will be responsible for making the status determination.
The HMRC are leaning on their on-line 'Check Employment Status for Tax' tool known as CEST which can determine whether the role you do is inside or outside IR35 by taking you through a series of questions. You can do this yourself today.
As part of the new regulations, the end client is responsible for cascading the status determination down the supply chain with all parties involved in the chain. We understand that there will be a requirement for a status determination to be shared with you either before or on the start of the assignment in question.
The end client has to provide you with the status determination and supporting reasons supporting the determination by 30 days of date of determination. Should you wish to dispute the decision, you will need to log your intention and provide supporting evidence to the end client within 45 days.
If you work via an umbrella company, you are unlikely to see any change in your pay.
If you work via a PSC and your role is determined to be inside of IR35 your invoice will be subject to the equivalent Tax and NICs as an employee. Huntswood will have to make employment tax deductions from your invoice before paying you the net balance. If this happens you will take all your income as salary therefore no corporation tax will be due by your limited company on this income.
If the status determination of your role states the company is outside of IR35, we foresee that you will be able to continue trading as you are today.
Based on the status determination of your role being inside IR35, we would recommend strongly that you share this with your accountant and seek advice on how to manage your tax affairs accordingly.
HMRC have advised that they will not use these changes as a trigger for retrospective reviews.
There is an exercise currently underway where we are working with all our clients to evaluate and assess all existing and new roles.
Based on the outcome of the analysis being done, rest assured we will offer contract roles that meet the criteria and the requirements outlined by our clients.
Huntswood do not directly employ associates. If you use an Umbrella Company, we would expect the Umbrella Company would be in place to offer the above employee benefits. If you work through your own limited company, we would expect you to make individual arrangements.
Based on the outcome of the decisions made by your end client, we will share the details with you so that you are fully aware of the financial impacts.