The IR35 Regulations came into force on 6 April 2021, affecting medium and large private sector businesses, who under the new Regulations will now be responsible for determining a worker’s employment status and whether the off-payroll working rules apply. The rules ensure that workers, who would be classed as an employee if they were contracted directly by the business, pay similar Income Tax and National Insurance contributions as employees do, with the relevant fee-payer making tax deductions as necessary.
The term ‘worker’ includes contractors and those who provide their services through an intermediary, such as a limited company. The ‘fee-payer’ is usually the organisation paying the worker, limited company or other intermediary, but can include the organisation directly above the worker’s limited company in the labour supply chain such as the client or an agency.
The Regulations place liability on the fee-payer to decide the employment status of each worker and to do so, the following information will need to be obtained:
- details of the worker’s contract;
- the worker’s responsibilities;
- information as to who decides what work needs doing;
- information as to who decides when, where and how the work is done;
- how the worker would like to/will be paid; and
- whether the engagement includes any corporate benefits or reimbursement for expenses.
The fee-payer must then make a determination as to the worker’s employment status using the information collected above. HMRC have created the following helpful tool which can be adopted from today in order to do so: https://www.gov.uk/guidance/check-employment-status-for-tax.
Once the worker’s employment status has been established, the fee-payer (if applicable) is then responsible for:
- deducting Income Tax (PAYE) and employee National Insurance contributions, and paying these to HMRC;
- paying employer National Insurance contributions and Apprenticeship Levy (if applicable) to HMRC;
- Issuing a P60 to the worker at the end of the tax year; and
- Issuing a P45 to the worker at the end of an engagement.
The general advice surrounding these changes in practice is that one department in the business (such as HR) should be responsible for the entire process. From making the necessary determination using the link above, to deciding who is the fee-payer and ensuring any tax requirements are met via the accounts department. This is to maintain consistency and accuracy for each worker and contract engaged.
If you believe you may be affected by these Regulations and or need advice as to how to implement the same, please do not hesitate to contact a member of our team. Please contact our London office by phone on 020 7421 9421, email sols@gordonsols.co.uk or make an online enquire here and we will be happy to speak with you.
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