Image C4a717d3ed
  • Publish Date: Posted about 3 years ago
  • Author:by Stewart McKinnon

IR35 Update – important for all contractors

Off-payroll working rules apply where workers provide their services through an intermediary but would be classed as an employee if they were contracted directly.\r\n\r\nThese have been introduced to ensure that workers providing services through an intermediary pay broadly the same tax and National Insurance contributions (NICs) as an employee.\r\n\r\nThe changes already apply in the public sector, but from 6 April 2020 they are being extended to medium or large-sized private sector clients who take on workers via intermediaries, including some charities and third sector organisations.\r\n\r\nAn intermediary will normally be a worker’s personal service company (PSC), but could also be a partnership, a managed service company, or another person.\r\n\r\nUp until April 2020, intermediaries decide their own status for private sector engagements.  After that date, it will become the responsibility of the company for which they supply services to provide them with an employment status determination, together with the reasons for that determination.\r\n\r\nThe only exception is small companies, where the intermediary will continue to decide on employment status. Intermediaries will also need to determine whether the off-payroll working rules apply if they do not receive a status determination from the client.  Company size will be determined under the existing definition in the Companies Act, with similar rules intended to be applied to unincorporated organisations. \r\n\r\nIntermediaries who decide the rules apply to them will become responsible for deducting tax and National Insurance contributions (NICs) from their fees and paying these to HMRC.\r\n\r\nDeemed Employer (Fee Payer)\r\n\r\nThe client (end user) will need to pass the worker’s employment status determination to the agency or other organisation they contract with. The determination must be passed on, until it reaches the party immediately above the worker’s intermediary. This party is known as the deemed employer being the one who ultimately pays the fees to the intermediary.\r\n\r\nWhere the rules apply, the deemed employer is then responsible for deducting the tax and NICs and paying these to HMRC. This is because the deemed employer is the lowest party in the labour supply chain and in most cases, the organisation paying a worker’s intermediary company.\r\n\r\nThis only applies to deemed employers resident in the UK, or who have a place of business in the UK engaging UK resident workers. (The rules on UK tax residence can be complex so proper consideration needs to be given to this matter where there may be some uncertainty).\r\n\r\nAlso the intermediary company must not be controlled, or the material interest not held, by either a worker, alone or with one or more associates of a worker, or an associate of a worker, with or without other associates so this almost certainly prevents a group of contractors or consultants forming their own company and providing’ substitute’ to the end user. Material interest is 5% or more, so to avoid this, it would mean an intermediary company having more than 20 contractors as shareholders.\r\n\r\nDeemed employers will receive the worker’s employment status determination. If the off-payroll working rules apply, deemed employers must calculate the employment taxes and NICs on the deemed payment arising from the contract. Once this has been done, it is necessary for the deemed employer to deduct tax and primary NICs from the payment to a worker’s intermediary. This will be applied as part of the normal PAYE process with the fee payer also having  to account for employer NICs, and submit the relevant Real Time Information (RTI) reports. Where appropriate it will also be necessary to apply the apprenticeship levy and make any payments necessary to HMRC\r\n\r\nWhat is the deemed direct payment?\r\n\r\nThis is the amount paid to the worker’s intermediary that must be treated as earnings for the purposes of the off-payroll rules.\r\n\r\nThis is calculated based on the value of the payment to the worker’s intermediary, having deducted VAT if applicable, plus the direct costs of materials that have, or will be, used in providing the services. Any expenses met by the intermediary that would have been deductible from taxable earnings if the worker was employed should also be taken into account.\r\n\r\nIt is unlikely that the temporary workplace rules will enable travel and subsistence costs to be claimed.  This is because in these types of situations, the engagement  will be regarded as a separate permanent employment for the purposes of travel and subsistence expenses. As each will be a permanent workplace, it means that intermediaries cannot claim expenses for travel and subsistence if they regularly commute from home to a workplace for an off-payroll engagement.\r\n\r\nWhen reporting the pay and deductions, companies will need to indicate if someone is an off-payroll worker. They can be added to an existing payroll, although this is not a requirement. Any errors can be corrected via RTI in the same way as for other employees.\r\n\r\nExclusions\r\n\r\nAs the worker is an employee, they are not entitled to statutory payments, nor are they automatically enrolled into a pension. The worker’s entitlement to statutory payments comes through their employment with their intermediary. They can also contribute to a pension as an employee of their intermediary.\r\n\r\nPrivate sector clients are not responsible for deducting student loan repayments for workers engaged through their own companies. The worker will account for student loan obligations in their own tax return.\r\n\r\nWorkers providing services through intermediaries do not have any employment rights, such as statutory sick pay or holiday pay.\r\n\r\nDisagreements\r\n\r\nIf an intermediary disagrees with how their employment status has been determined, they will need to advise this in writing setting out the basis of the disagreement.\r\n\r\nThe client will then have 45 days from the date of receiving the worker’s disagreement to respond. During that time the client should continue to apply the rules in line with their original determination.\r\n\r\n \r\n\r\nStewart McKinnon, M&S Accountancy and Taxation Ltd.\r\n

Share this Article
Back to Blogs
Off-payroll working rules apply where workers provide their services through an intermediary but would be classed as an employee if they were contracted directly.\r\n\r\nThese have been introduced to ensure that workers providing services through an intermediary pay broadly the same tax and National Insurance contributions (NICs) as an employee.\r\n\r\nThe changes already apply in the public sector, but from 6 April 2020 they are being extended to medium or large-sized private sector clients who take on workers via intermediaries, including some charities and third sector organisations.\r\n\r\nAn intermediary will normally be a worker’s personal service company (PSC), but could also be a partnership, a managed service company, or another person.\r\n\r\nUp until April 2020, intermediaries decide their own status for private sector engagements.  After that date, it will become the responsibility of the company for which they supply services to provide them with an employment status determination, together with the reasons for that determination.\r\n\r\nThe only exception is small companies, where the intermediary will continue to decide on employment status. Intermediaries will also need to determine whether the off-payroll working rules apply if they do not receive a status determination from the client.  Company size will be determined under the existing definition in the Companies Act, with similar rules intended to be applied to unincorporated organisations. \r\n\r\nIntermediaries who decide the rules apply to them will become responsible for deducting tax and National Insurance contributions (NICs) from their fees and paying these to HMRC.\r\n\r\nDeemed Employer (Fee Payer)\r\n\r\nThe client (end user) will need to pass the worker’s employment status determination to the agency or other organisation they contract with. The determination must be passed on, until it reaches the party immediately above the worker’s intermediary. This party is known as the deemed employer being the one who ultimately pays the fees to the intermediary.\r\n\r\nWhere the rules apply, the deemed employer is then responsible for deducting the tax and NICs and paying these to HMRC. This is because the deemed employer is the lowest party in the labour supply chain and in most cases, the organisation paying a worker’s intermediary company.\r\n\r\nThis only applies to deemed employers resident in the UK, or who have a place of business in the UK engaging UK resident workers. (The rules on UK tax residence can be complex so proper consideration needs to be given to this matter where there may be some uncertainty).\r\n\r\nAlso the intermediary company must not be controlled, or the material interest not held, by either a worker, alone or with one or more associates of a worker, or an associate of a worker, with or without other associates so this almost certainly prevents a group of contractors or consultants forming their own company and providing’ substitute’ to the end user. Material interest is 5% or more, so to avoid this, it would mean an intermediary company having more than 20 contractors as shareholders.\r\n\r\nDeemed employers will receive the worker’s employment status determination. If the off-payroll working rules apply, deemed employers must calculate the employment taxes and NICs on the deemed payment arising from the contract. Once this has been done, it is necessary for the deemed employer to deduct tax and primary NICs from the payment to a worker’s intermediary. This will be applied as part of the normal PAYE process with the fee payer also having  to account for employer NICs, and submit the relevant Real Time Information (RTI) reports. Where appropriate it will also be necessary to apply the apprenticeship levy and make any payments necessary to HMRC\r\n\r\nWhat is the deemed direct payment?\r\n\r\nThis is the amount paid to the worker’s intermediary that must be treated as earnings for the purposes of the off-payroll rules.\r\n\r\nThis is calculated based on the value of the payment to the worker’s intermediary, having deducted VAT if applicable, plus the direct costs of materials that have, or will be, used in providing the services. Any expenses met by the intermediary that would have been deductible from taxable earnings if the worker was employed should also be taken into account.\r\n\r\nIt is unlikely that the temporary workplace rules will enable travel and subsistence costs to be claimed.  This is because in these types of situations, the engagement  will be regarded as a separate permanent employment for the purposes of travel and subsistence expenses. As each will be a permanent workplace, it means that intermediaries cannot claim expenses for travel and subsistence if they regularly commute from home to a workplace for an off-payroll engagement.\r\n\r\nWhen reporting the pay and deductions, companies will need to indicate if someone is an off-payroll worker. They can be added to an existing payroll, although this is not a requirement. Any errors can be corrected via RTI in the same way as for other employees.\r\n\r\nExclusions\r\n\r\nAs the worker is an employee, they are not entitled to statutory payments, nor are they automatically enrolled into a pension. The worker’s entitlement to statutory payments comes through their employment with their intermediary. They can also contribute to a pension as an employee of their intermediary.\r\n\r\nPrivate sector clients are not responsible for deducting student loan repayments for workers engaged through their own companies. The worker will account for student loan obligations in their own tax return.\r\n\r\nWorkers providing services through intermediaries do not have any employment rights, such as statutory sick pay or holiday pay.\r\n\r\nDisagreements\r\n\r\nIf an intermediary disagrees with how their employment status has been determined, they will need to advise this in writing setting out the basis of the disagreement.\r\n\r\nThe client will then have 45 days from the date of receiving the worker’s disagreement to respond. During that time the client should continue to apply the rules in line with their original determination.\r\n\r\n \r\n\r\nStewart McKinnon, M&S Accountancy and Taxation Ltd.\r\n

Latest Blogs

View All Blogs
1 A Pa0pj9p Kg Lop Vf Iu M Nlo Q E1579474393478
“Show me the Money!!!”

As the UK teeters on the brink of the recession precipice, the most commonly used phrase Cedar’s recruitment consultants hear these days is, “What with everything that’s going on…”.A year ago, we w...

Skynews Rishi Sunak Liz Truss 5845802
Britain's surprisingly diverse leadership battle

At Cedar, we're a diverse bunch, with diverse views, including our politics​. But looking at the current Government, it seems we're at an inflection point for all parties.With the resignation of Bo...

Regents Street Pride
​London Pride

In June 1970, up to 20,000 people gathered for what was then called a Gay Liberation march in New York. Although the battle for gay rights in the USA can be traced back to the 1920s, this march was...

Diverse Hands
​DE&I at Cedar – a work in progress

If you read our previous blog, ‘The Long March to Equality’, examining the rise of DE&I within recruitment, you may have been surprised, as we were, at how far the industry has come since the f...

I Stock 1072338828
The long march to equality

The oldest person who works at Cedar can remember when airlines advertised for male pilots and female air-hostesses. In Northern Ireland at that time, recruitment consultants used to draw up list...

Employers Are Getting Very Choosy Image
Employers are getting very choosy… A review of the recently-qualified accountancy & finance jobs market

The recruitment market and the economy more generally have had a lot of exogenous shocks over the last few years is, I can say without fear of contradiction, an understatement. Yet, despite all th...

square peg
Square pegs, round holes…and the need for genuine tax expertise in your business

As you know, the government has an Office for Tax Simplification, set up by George Osborne after he became Chancellor of the Exchequer in 2010. Unfortunately, as a former tax director from Grant...

Blank
​Recruitment as we move into Q4 – it’s a battlefield and a buyer’s market

Last year, as the full extent of the pandemic, became apparent, many economists said it would take a long time for the economy to recover. In April 2020, The Guardian reported that the EY Item Club...

Screen Shot 2018 07 12 At 3
What it takes to be a successful PE portfolio company CEO

​Whilst there is not a one size fits all solution for what we see in successful PE portfolio company CEO’s we are able to see some clear trends when it comes this. Below we have attempted to answer...

Image 790ea9f990
How to Make Your CV Stand Out

Looking for your next finance role? The first step is getting your CV right. With such a small window in which to impress recruiters, it’s vital that you’re able to make your CV stand out from the ...

Image 70a5eb1f6f
Public Practice Priorities for the year(s) ahead

Just over a year ago, we were starting to learn about a strange illness that was causing people to die in a number of countries - China, Italy and then, in small numbers at first, the UK. If you Go...

Picture1
How Covid-19 has changed company cultures.

​We are coming up to 12 months of working from home and company culture is one of the biggest things that has changed in our working environment.From a recruitment perspective, one of the most comm...

Image C3446935a3
Temperature Check – Recruitment in 2021

As we close on 2020, supposedly the year of clarity (20/20 vision) what do our Consultants see the future holding.Despite the threat of a 2nd mutated strain arriving at our shores and the likelihoo...