16 Feb 2021
What is changing?
Who is effected?
What you will need to do.
You’ll need to decide the employment status of:
You should communicate your determination using a Status Determination Statement (SDS).
How to work out an employment status for the SDS:
Companies will take on the task of establishing employment status in different ways – using internal and/or external expertise. In all cases, they have to be able to demonstrate that reasonable care has been taken – to work out the status of each contractor.
They may use one or more of the following methods:
Importantly, a client can only make an accurate IR35 status decision by looking at the whole picture of the assignment and the way it is carried out – including contract wording and working practices.
An SDS must:
You must take reasonable care when making a determination. You can issue an SDS before 6 April 2021 if the rules apply.
Youʼll also need to:
If you are also the fee-payer and the off-payroll working rules apply, you will need to deduct and pay tax and National Insurance contributions to HMRC.
What to do if a worker or deemed employer disagrees with your determination.
A worker or deemed employer may disagree with the employment status determination you reached.
If this happens you will need to:
A disagreement can be raised with you until the last payment is made for the workerʼs services.
You must provide a response within 45 days of receiving notification that the worker or deemed employer disagrees with your employment status determination. During this time you should continue to apply the rules in line with your original determination.
Fee Payer Responsibilities
The fee-payer is the party paying the worker, limited company or other intermediary. The fee-payer will also be the organisation directly above the workerʼs limited company in the labour supply chain. This could be the client or an agency.
If the off-payroll working rules apply, the fee-payer is usually responsible for:
When you receive the workerʼs employment status determination and the off-payroll working rules apply, you must:
Employment allowance cannot be used against payments to deemed employees.
How to calculate the deemed direct payments
The deemed direct payment is the amount paid to the workerʼs intermediary that should be treated as earnings for the purposes of the off-payroll rules.
You then need to deduct tax and employee National Insurance contributions as appropriate from the deemed direct payment. You also need to pay employer National Insurance contributions.
Youʼll need to report the pay and deductions you make to HMRC using a Full Payment Submission, as you do for workers on your payroll. You should indicate that this person is an off-payroll worker.
You do not have to add these workers to your existing payroll, but you can do this if you wish. If the payments are not reported under your existing PAYE scheme, then youʼll have to open a new one.
You should keep records of any payments as well as amounts of Income Tax and National Insurance contributions deducted.
Take into account the deemed employment payment when paying Corporation Tax, paying dividends or operating the Construction Industry Scheme
Your worker will need to report information about these engagements to HMRC on their Self Assessment tax return, and pay any other Income Tax and National Insurance contributions that are due.
How much tax and national insurance must be paid?
You should give the worker a new starter checklist. This will decide the workerʼs tax code. The tax code will often be code “BR”, as the worker will have a primary employment with their own intermediary.
You must use the normal National Insurance rates and thresholds on the value of the deemed payment.
To work out how much tax and National Insurance contributions need to be paid on the deemed employment payment, you are required to use your payroll software.
This means that when you pay the worker they do not need to pay tax and National Insurance contributions again on those fees.
You can do this by either paying it as:
As the amounts have already been treated as employment income doing it this way will avoid any double payment of tax or National Insurance contributions.
For further advice or clarification on how the off payroll working rules will affect your business please contact your relationship Director. Rest assured we will work with you to ensure that your business is compliant with the new legislation from an accounting, tax and payroll perspective.