IR35 or ‘off payroll worker’ legislation is a complex set of rules, which has been in place since July 2000. There are far reaching changes to this legislation taking effect from 6 April 2021, so it’s clear to see why this is such a hot topic of conversation for businesses, given the costly impact it is likely to have on many.
The IR35 rules shine particular focus on workers that are operating through an intermediary, such as a personal service company (‘PSC’). The legislation allows HMRC to look through the intermediary to determine (for tax purposes), if the relationship between the worker and the ‘end engager’ is in fact one of employment.
These rules are not to be confused with the ‘self-employed vs employed’ rules. If your business engages directly with workers who are paid gross, you should be assessing on a regular basis whether these workers are self-employed for tax purposes or whether they should perhaps be brought within PAYE as an employee.
So, as a business, what should you be considering in advance of the changes to the legislation? Firstly, it is important to identify any worker who provides your business with services, who is not paid via your payroll.
If your business is the ‘end engager’, you will be responsible for assessing the worker’s status and issuing a status determination statement on a regular and ongoing basis. In order to facilitate this, it is important to implement processes and procedures that will assist in identifying and assessing these engagements.
Another layer of complexity with these rules is the distinction between the ‘end engager’ and the ‘fee payer’. In some cases, this might be two different entities. The fee payer is the entity who actually pays the worker’s intermediary and is responsible for operating the payroll, where the worker is considered ‘employed’. Where foreign entities are involved in the supply chain, the obligation will fall to the next UK entity within the chain.
Finally, it is of key importance that you ensure that you keep clear and adequate records to evidence the steps you have taken. HMRC have stated that there will be financial penalties where you are unable to show that your business has considered this legislation.