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Changes to IR35 off payroll working from 6th April 2021.

What are the changes to IR35 off payroll working from 6th April 2021?

For medium and large sized businesses, (you meet 2 of the 3 conditions below to be a medium or large sized business):

  • You have an annual turnover of more than £10.2 million.
  • You have assets before deducting liabilities on your balance sheet of £5.1 million.
  • You have more than 50 employees.

You will need to complete a Status Determination Statement (SDS) for each subcontractor you appoint, to decide how the tax and national insurance is to be dealt with for the subcontractor.  Is it the responsibility of the subcontractor or is it your responsibility to stop tax, national insurance and pay employers national insurance?

You must provide the subcontractor with the SDS advising them how they have been assessed.

If the subcontractor disagrees with your assessment you have 45 days to resolve the disagreement.

Depending on the SDS, you will need to deal with tax and national insurance of the subcontractor accordingly.

You must keep records of all SDS for 6 years.


For smaller sized businesses:

If the subcontractor comes from their own limited company or an agency, it will be the responsibility of the subcontractor to complete their own SDS to confirm who is responsible for deducting tax, national insurance and paying employers national insurance.  You will need to ask for a copy of the SDS.  You must take reasonable care to make sure you are happy with the SDS provided to you.  Depending on the SDS, you will need to deal with tax and national insurance of the subcontractor accordingly.

Is a subcontractor only someone who works in construction?

A subcontractor is not only someone who works in construction or CIS.  If your company appoints anyone to work with you, who is not an employee, you must consider all the details below.

What types of Subcontractors need an SDS?

A person who trades through their own Limited Company needs an SDS.

A person that comes from an agency needs an SDS.

If a person comes from an umbrella company, they will not need an SDS as the umbrella company will deal with this, but you must keep all evidence that the person comes through an umbrella company.

If the person is trading as a sole trader and not through their own limited company or agency, they will not need an SDS, but you will need to follow the rules of assessing if the sole trader complies with the rules set out by HMRC to determine if the subcontractor is actually self employed or is classified as employed by HMRC.  Look out for our blog next week with more details on this.

I am a large/medium sized company, what do I need to do when appointing subcontractors who are limited companies or come from an agency?

Step 1:  Complete a Status Determination Statement for each subcontractor.  You can have an internal procedure to do this, but HMRC has a free CEST tool (Check employment status for tax) that you can use to determine whether the subcontractor must take care of their own tax and national insurance, or if you are responsible for deducting tax and employees’ national insurance from the subcontractor, and if you are responsible for paying the employers national insurance.

The link to use the CEST tool is:

Check employment status for tax - GOV.UK (www.gov.uk)

The CEST manual can be found at:

Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk)

The CEST tool asks questions about the subcontractor and then will provide a determination as to the employment status of the subcontractor and if off payroll working rules apply, which mean you are responsible for deducting the tax, employees’ national insurance and paying the employers national insurance. If off payroll working do not apply you continue to pay the subcontractor as before.

Step 2:  Give a copy of the CEST SDS or your internal SDS report to the subcontractor/agency.

Step 3:  If the subcontractor/agency does not agree with the result of the SDS report, you must have an internal policy as to how subcontractors can inform you they do not agree with the SDS.  You then have 45 days to:

Consider the reasons for the disagreement.

Decide whether to keep the determination of the original SDS and give reasons to the subcontractor / agency as to why you are keeping the original result of the original SDS. If you consider the reasons the subcontractor/agency has given you for disagreeing are correct, you need to do a new SDS.  Give the new results of the second SDS to the subcontractor or agency.

Step 4:  If the SDS report has confirms that off payroll working rules apply, you must inform your payroll department that tax and employees national insurance need to be deducted from the subcontractor before they are paid, and you are responsible for paying the employers national insurance.  If the SDS report confirms that off payroll working rules do not apply you continue to pay your subcontractor as before.

You must keep all records of SDS reports, disputes, and all communications for 6 years.

I am a small company, what do I need to do when appointing subcontractors who are limited companies or come from an agency?

Step 1: Inform the subcontractor that you are a small company and give them evidence as to why you are classed as a small company and tell the subcontractor you need a copy of the SDS report they did for themselves.  The subcontractor can use the HMRC tool for completing the report as mentioned above:

The tool from HMRC is called CEST Tool and the link for using the tool is below:

Check employment status for tax - GOV.UK (www.gov.uk)

The CEST manual can be found at:

Employment Status Manual - HMRC internal manual - GOV.UK (www.gov.uk)

As mentioned above the CEST tool asks questions about the subcontractor and will create an SDS assessment if off payroll working applies or not.

Step 2:  The subcontractor must give a copy of the SDS report to you.

Step 3:  If the SDS report has confirmed that off payroll working rules apply, you as the client of the subcontractor must inform your payroll department and then tax and employees national insurance need to be deducted from the subcontractor before they are paid and you as the client are responsible for paying the subcontractors employers National insurance.  If the SDS report confirmed that off payroll working rules do not apply, you continue to pay your subcontractor as before.

You must keep all records of SDS reports, disputes, and all communications for 6 years.

If you are the subcontractor and have been asked to provide an SDS report for your client, you can follow step 1 above.  Make sure you get in writing from your client why they consider themselves a small company.

If the SDS report confirms off payroll working does apply, do I just add the subcontractor onto payroll as an employee?

If the SDS report confirms off payroll working does apply you need to make sure your payroll software is set up to add an off payroll working subcontractor.  You do not just add them as an employee.

I am a large/medium sized company and some of the subcontractors I appoint are sole trader or partnerships, what should I do?

As the off payroll working rules do not apply to subcontractors who work as sole traders or partnerships you have to make sure you have taken the time to ensure you have considered the deemed status of the subcontractor following HMRC guidelines.  Is the person actually a subcontractor or are they in reality an employee.  Look out for our blog next week for more details on deciding if a sole trader/partnership subcontractor is really a subcontractor or would be deemed as an employee by HMRC.

I am a small company and some of the subcontractors I appoint are a sole traders or partnerships, what should I do?

The rules for this are the same for large, medium, and small companies.  The off payroll working rules do not apply to subcontractors who work as sole traders or partnerships.  You have to make sure you have taken the time to ensure you have considered the deemed status of the subcontractor following HMRC guidelines.  Is the person a subcontractor or are they in reality an employee?  Look out for our blog next week for more details on deciding if a sole trader or partnership subcontractor is really a subcontractor or would be deemed as an employee by HMRC.

I am a limited company, but all my clients are based overseas, what should I do?

If your clients are all based overseas, your organisation will be responsible for completing the SDS report.

What are my next steps?

If you are a medium or large company, make sure you have set up your procedure for completing the process mentioned above.  Decide which of your subcontractors will need an SDS because they are a limited company or come from an agency.  Communicate your procedure with all relevant subcontractors.  Make sure your payroll is ready to deal with off payroll working subcontractors.

If you are a small company, make sure you have communicated to all your subcontractors that they will need to provide an SDS report to you by 6.4.2021 if they are a limited company or come from an agency.  Make sure you agree with the off payroll working assessment on the SDS report.   Make sure your payroll is ready to deal with off payroll working subcontractors.

HMRC have confirmed they will accept the ruling off the SDS report if the HMRC CEST tool is used so make yourself familiar with this tool whether you are completing an SDS report for a subcontractor or you are the subcontractor completing the SDS report for yourself.

If you need any extra guidance, please get in touch.  We are here to help.



 

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