Understand and prepare for changes to the off-payroll working rules (IR35) if you are a client receiving services from a worker through their intermediary.

Overview

Off-payroll working rules change on 6 April 2021 and are applied differently. From this date, all public authorities and medium and large-sized clients will be responsible for deciding the employment status of workers (sometimes known as contractors).

Who the rules apply to

Some rules already apply to all public sector clients, but from 6 April 2021 medium and large-sized private sector clients also need to apply them. The private sector includes third sector organisations, such as some charities. The rules apply to all public sector clients and private sector companies that meet 2 or more of the following conditions:

• you have an annual turnover of more than £10.2 million
• you have a balance sheet total of more than £5.1 million
• you have more than 50 employees

Balance sheet total means the total amounts shown as assets in the company’s balance sheet before deducting any liabilities. This is in line with the small companies’ regime.

Simplified test

A simplified test also applies to some clients and considers annual turnover. You must apply the rules if you have an annual turnover of more than £10.2 million and are not:

• a company
• a limited liability partnership
• an unregistered company
• an overseas company

There are also rules which cover connected and associated companies. If the parent of a group is medium or large, their subsidiaries will also have to apply the off-payroll working rules.

When you need to start applying the rules

Public sector clients

You must continue to apply the rules when the changes come into force on 6 April 2021. However, from this date there are extra responsibilities that will affect you.

Private sector clients

If you meet the simplified test conditions you must start applying the rules when the changes come into force on 6 April 2021.

If you use the simplified test to determine your size, you must apply the rules from the start of the tax year following the end of the calendar year when you met the conditions.

If you do not use the simplified test and do not meet the conditions on 6 April 2021, your circumstances may later change. If you then meet the conditions for 2 consecutive years, the date you need to apply the rules will be different. You must apply the rules from the start of the tax year following the end of the filing period for the second financial year when you met the conditions.

What you need to do as a client

You’ll need to decide the employment status of every worker who operates through their own intermediary, even if they are provided through an agency.

You should communicate your determination using a Status Determination Statement (SDS).

An SDS must:

• be passed to the worker and the person or organisation you contract with
• give your conclusion and the reasons for coming to it

You must take reasonable care when making a determination. You can issue an SDS before 6 April 2021 if the rules apply.

You’ll also need to:

• make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid
• have processes in place to deal with any disagreements that arise from your determination
• confirm the size of your organisation if asked by the person or organisation you contract with, or the worker

If you are also the fee-payer and the off-payroll working rules apply, you will need to deduct and pay Income Tax and National Insurance contributions to HMRC.

You can view the full guidance from GOV.UK here.