IR35

The Finance Act 2020 received Royal Assent in July. It includes the previously delayed off-payroll (IR35) changes – this confirms that the IR35 changes will now go ahead on 6 April 2021. From that date, the responsibility for managing IR35 moves away from personal service companies to clients and fee-payers.

• If your client is a public authority, the rules which took effect in April 2017 remain in place (with some amendments). 
• If your client is a private sector client, you need to know whether they are exempt from the changes or not. Clients who are small or who have no UK connection will be exempt from the changes - when a PSC provides their services to an exempt client the PSC remains responsible for IR35. Use our exempt client declaration form to ask the client about their status.

Who has to do what? 

If a client is not exempt, it must provide a status determination statement to both the worker and the party it has a contract with. That statement must confirm whether the engagement is ‘inside IR35’ or ‘outside IR35’. If it is an ‘inside IR35’ engagement, the fee-payer (who has the contract with the PSC) must deduct tax and national insurance before paying the PSC. Employers’ national insurance will also be due. If it is ‘outside IR35’ the fee-payer can pay the PSC gross. See our template client status determination statement.

Preparation

With just five months to go businesses must prepare for the changes. That includes understanding which clients are captured (or not), what roles are filled by PSCs, how clients will make their determinations, who is in the supply chain, what happens to pay and charge rates, how to report payments and what records to keep.

HMRC activity

HMRC have recently updated their Employment Status Manual (in particular look at chapter 8000, 10000 and 11000). This is guidance only but it is useful to understand HMRC’s interpretation of the law. 

There has been some public discussion about how a late change to the off-payroll rules (now in the Finance Act 2020) would affect the use of umbrella companies i.e. that the change might require agencies to deduct PAYE tax and national insurance even where there is an umbrella in the supply chain. REC spoke with HMRC on 14 October and HMRC have released this statement to reassure agencies and umbrellas that where the umbrella company deducts PAYE tax and national insurance, the agency does not have to consider the off-payroll rules.

Contracts and other resources

REC Legal have updated contracts. We have also produced three new infographics – one for agencies to use internally and one each for agencies to use with their clients and contractors. Please keep an eye on this IR35 hub, our Legal bulletin and bitesize, and the IR35 section of the legal guide for updates.