Off-Payroll working from April 2021 & how it could affect you
Employers must run a PAYE scheme and settle Income Tax and National Insurance Contributions (NICs) on an employee’s pay.
Historically, these PAYE costs were often avoided by engaging private contractors directly rather than as employees.
However, anti-avoidance legislation was introduced which treated contractors as employees where the relationship was, in reality, the same as an employment.
To avoid this, many engagers required contractors to operate through a Personal Service Company (PSC). Back then, the anti-avoidance legislation did not extend to the engagement of companies.
There was also the added benefit of the contractor being able to extract the profits of their PSC as dividends, subject to lower rates of Income Tax.
Anti-avoidance legislation - IR35
HMRC then introduced subsequent anti-avoidance legislation (known as IR35) which effectively treated profits of the PSC as employment income of the contractor and the Income Tax and NIC burden fell on the PSC (and not the engager).
The recent introduction of ’Off-Payroll’ working’ largely shifts the risk back to the engager.
From April 2021
- Medium or large businesses are required to assess the working arrangements of all their contractors.
- Where the relationship reflects employment, the contractor must be treated as employee.
- This will have a negative effect on cashflow, could reduce the amount you can extract from your PSC without creating an adverse tax charge and may even generate company losses which may be unutilised, in the future.
'Off-Payroll Working' Rules
- If you provide your services through a PSC to a public sector client, or a medium or large sized private sector client, you should receive an ‘employment status determination’ from your engager together with a full explanation as to how they have arrived at their determination.
- If you do not receive an ‘employment status determination’ or your services are provided to small private sector client, you – as the intermediary (usually a PSC) – will be responsible for determining your status to see if the ‘Off-Payroll’ working rules apply.
How can we help?
Contact us on 01223 810 100 - If you are unsure how the ‘Off-Payroll’ working rules will affect you from 6 April 2021