Off-Payroll Working Rules

The application of the IR35 rules was due to change for many contracts performed in private sector organisations from 6 April 2020 where the contractor offers their services through their own personal service company (PSC), these changes have now been pushed back to 6 April 2021.

Contractors working for public sector organisations have been subject to these rules for over two years. In HMRC’s view all workers should be paid via the payroll, hence the tag ‘off-payroll’. However contractors and their clients are currently free to agree any working relationship which suits them.

From April 2021 the end-client for whom the work is performed will have to determine whether IR35 applies to each contract. If the IR35 tests do bite, the contractor is treated as a deemed employee of the client and PAYE and employee’s NIC must be deducted from the amount invoiced by the PSC. The worker is not entitled to any employment rights although they are effectively taxed as an employee.

Where PAYE and NIC are deducted from the invoiced amount, the contractor does not have any further corporation tax or income tax liabilities on that income. Any VAT charged is still collected and paid to HMRC on the full value of the invoice.

Contractors working for small private sector clients are not affected. ‘Small’ in this case generally means not big enough to require an audit. The records at Companies House can tell you whether the company is audited and we can help you make that judgement in marginal cases.

The new rules will only apply for private sector contracts where services are performed on or after 6 April 2021 and payment for those services is made on or after that date.

Although pushed back for 12 months until April 2021 we urge all contractors to remember the government will be bringing in these changes.