The IR35 rules had been set to take effect from 6 April 2020, however, they are now on hold until 6 April 2021. This is to help the business community cope with the impact of the coronavirus (COVID-19), and the government emphasises that it is a ‘deferral, not a cancellation’ of the policy.
So, what do contractors do now?
The off-payroll rules, often called the IR35 rules, were introduced because of concern about loss of tax revenue, particularly national insurance contributions (NICs), arising through the use of intermediaries in the labour chain. Intermediaries are most often a worker’s personal service company (PSC), though they can also be an individual, partnership or unincorporated association. The government believes many off-payroll workers are wrongly classified for tax purposes, and should be treated as employees.
From 6 April 2021, therefore, if you work for a medium or large client through a PSC or other intermediary, responsibility for determining employment status passes from your PSC to your client. Further information can be found here: bit.ly/2VdiFes.
But for now, it is as you were. If you work for a client in the private sector, you determine employment status on your contract, not the client. Deduction of tax and NICs remains your responsibility. To help with questions around employment status, HMRC has enhanced its online Employment Status Checker Tool, CEST, although there are still reservations about its ability to cope with the nuances of real life.
But the late change may create practical problems. What if you’ve already been given a Status Determination Statement (SDS), as if the new rules were now in force, for example? An SDS has no legal standing this year.
It is up to the PSC to determine its status, and deal with tax and NICs as before. HMRC says it won’t use any SDS already issued as evidence if there is a dispute over your employment status in the next 12 months.
If we can be of any assistance with further advice, please do not hesitate to get in touch on 0161 761 5231 or email theteam@horsfield-smith.co.uk.
