Those who hoped the rules in connection with off-payroll working for private sector entities would be abandoned because of COVID-19, are to be disappointed. The regulations have simply been postponed until 6 April 2021 when they will come into force.
Who will be affected?
The rules apply to medium and large concerns that engage the services of workers who operate through a Personal Service Company (PSC) or similar entity. For these purposes they are classed as medium or large if they meet two of the following three conditions:
- an annual turnover of more than £10.2 million
- a balance sheet total of more than £5.1 million (this is total assets before liabilities)
- more than 50 employees
If an entity is part of a group, the tests must be applied across the group not to the individual entity.
Where a business falls within the rules there is a need to consider whether the worker would be an employee if they were engaged directly rather than through the PSC.
The onus lies with the engager
The employment status must be determined for all workers not just new workers. Therefore, a review should be undertaken in relation to existing workers if they are still working for the engager on 6 April 2021.
The engager should communicate their determination using a Status Determination Statement (SDS).
An SDS must:
- be passed to the worker and the person or organisation the contract is with
- give the conclusion and the reasons for coming to it
An SDS can be issued before 6 April 2021, if the rules apply.
The engager should have processes in place to deal with any disagreements that arise from their determination and there are specific rules in connection with the appeals process.
If the worker is a deemed to be an employee, then the engager will generally need to deduct PAYE and National Insurance from the payments to the PSC. Where the payments are made though a 3rd party (e.g. an agency) it may be for them to deduct the PAYE and national insurance. However, it is still the engager’s responsibility to determine the employment status and notify the worker and agency.
HMRC online tool
To determine employment status HMRC provide an online tool which can be found at https://www.gov.uk/guidance/check-employment-status-for-tax . Though not perfect we recommend, for protection, it is followed as HMRC have stated that they will accept its conclusions although this is on the assumption that the questions on the tool are correctly answered. A copy of the output should be saved for each worker to support the decision if challenged by either the worker or HMRC.
Where the private sector engager is small, then the off payroll working rules do not apply. However, the existing IR35 rules are still applicable to the PSC.
Mercer & Hole are here to help
Now is a good time for any business that will fall into the new rules in April 2021, to review engagements for services and ensure they are clear on the nature of these and any forthcoming liability to deduct PAYE tax and national insurance payments. Please do not hesitate to contact our Business Services team if you need any guidance or help in implementing these regulations. We can provide a tailored service according to your needs.