With all of the U-turns on tax policy in the last couple of months, businesses may be confused about what changes are going ahead and which ones have been scrapped by the new chancellor.
One of the controversial announcements in the mini-budget on 23 September was the abolition of the “off-payroll” rules (known as IR35) that apply when workers are engaged via an intermediary, typically their own personal service company (PSC). This was due to take effect from 6 April 2023, restoring the tax rules to the pre-6 April 2017 position and would have reduced the compliance burden on end-user organisations. However, this is one of the many measures that was scrapped by Jeremy Hunt, so the current rules continue to apply.
This means that public sector bodies and large and medium-sized organisations will still need to decide the employment status of every worker who supplies their services through their own intermediary (PSC), even if they are provided through an agency. Whether the organisation qualifies as large or medium-sized is determined by the criteria set out in the Companies Act.
On paper, IR35 and ‘Off-Payroll Tax’ sound relatively simple, as you may think the distinction between an employee and a contractor is clear. However, the legislation is nuanced and subjective, meaning even the most well-meaning, law-abiding companies and contractors can end up in HMRC’s bad books.
If the off-payroll working rules apply to the relationship, they are required to communicate the worker’s employment status determination to them and also the fee-payer by using a Status Determination Statement (SDS). If the end-user organisation is also the fee-payer, they will need to deduct and pay Income Tax and National Insurance contributions to HMRC.
HMRC suggest that end-users utilise the Check Employment Status for Tax service to help them decide if the off-payroll working rules apply.
For detailed guidance see: April 2021 changes to off-payroll working for clients