Changes from April 2021: the burden of tax liability moves from the contractor to the end clients and the recruitment agencies.

From 6 April 2021 the rules for engaging individuals through personal service companies or other intermediaries are changing.
The responsibility for determining if the ‘off-payroll working rules’ (IR35) apply will be with the organisation receiving an individual’s services.

Ensure you understand:

– the impact of the changes on your organisation
– the actions you might need to take before the changes come into effect

The workplace should have been a level playing field, where you couldn’t have two individuals working side-by-side doing the same job, with one being taxed as an employee and one being treated as an independent contractor. This hasn’t always happened.

HMRC had estimated that only 10 percent of the contractor population was treating engagements as “inside IR35” and if that wasn’t properly addressed this would cost the Treasury up to £1.3bn per year by 2023-24. Their target is to increase the 10 percent to a third of all engagements being deemed inside IR35.

HMRC believed that the changes would affect approximately 60,000 medium and large-sized end-client engagers and potentially 20,000 agencies.
In terms of contractors, the changes were being presented as 170,000 contractors having less of an administrative burden – possibly because a lot of them would be closing down their PSCs (Personal Service Company).

(Payroll, HR and recruiting managers will need to understand the changes)

Steps you need to take:

1. Look at your current workforce.
This includes those engaged through employment agencies.

Identify individuals who are supplying their services through their own limited company (sometimes known as a personal service company), or other intermediaries.

Put in place processes to identify future individuals who work in this way.

2. Talk to individuals and agencies you engage with.
You may need information from them on some engagements.

Share the contractor factsheet to help your contractors understand how the changes may affect them.

3. Determine if the off-payroll working arrangements apply.
Check if the rules apply for any contracts that will extend beyond, or start after 6 April 2021.

Decide who in your organisation should be responsible for the determination of employment.

You can use HMRC’s Check Employment Status for Tax (CEST) service to find out if a worker should be considered employed or self-employed for tax purposes:

Look at escalations for difficult cases.

Make a determination ahead of April 2021 – as long as the information remains correct.

4. After you’ve determined if the rules apply.
You’ll need to tell the contractor (and any agency you engage with) the outcome.

Use a Status Determination Statement (SDS) to tell them.

5. Who will operate PAYE.
Consider if your organisation or an agency will have to operate PAYE.

If you’ll need to operate PAYE, put in place processes to make sure the correct Income Tax and National Insurance contributions (NICs) are deducted for engagements inside the rules from 6 April 2021.

6. Dealing with disagreements.
You’ll need to set up a process to deal with any disagreements about the employment status determination. This is a legal requirement.

7. Keep records.
You’ll need to make sure you maintain a robust audit trail. It is a legal requirement to keep records.

8. Test your processes.
You’ll need to test your processes, systems and controls to make sure you’re ready.

9. Changing working practices and contracts.
You should follow the processes you’ve set up to revisit status decisions and make new ones if you:

– change working practices
– change contractual arrangements
– renew contracts
– create new contracts

You can find more information about the April 2021 changes for off-payroll working and who it affects, here:

About BAMA

The British Aerosol Manufacturers' Association (BAMA) represents the aerosol supply chain, from suppliers of components and ingredients, to fillers and brand owners. The association offers a range of business support and advice services to members and represents the views of the industry to legislators and regulators.

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