The delayed changes to off-payroll working rules (IR35) kick in from 6 April 2021 – a year later than planned because of the COVID-19 pandemic.

The changes impact contractors who work through a personal service company (PSC) – usually their own limited company – or via other intermediaries such as employment agencies. It relates to work done for medium and large-sized private sector end clients and some third sector organisations.

The changes do not apply to self-employed workers, or to work done for small-sized businesses. These rules have applied to the public sector since 2017.

The government is making the changes to bring PSC contractors’ tax and NI contributions broadly in line with ‘on the book’ employees who are doing equivalent work for the same company.

The bottom line is that the rules might affect how much tax and National Insurance these contractors are liable to pay, and how they pay it. For the end client and employment agencies, it also introduces new responsibilities. For everyone involved in the labour supply chain, there is a responsibility to ensure they are IR35 compliant.

Until now, PSC contractors who do work for end clients could decide their employment status for each private sector assignment. The contractor could then pay their tax and National Insurance accordingly.

The responsibility for determining employment status now falls on the end client. Where the client assesses that off-payroll IR35 rules apply, the end client (or employment agency where the agency pays the contractor’s fees) will become responsible for accounting for and paying the worker’s tax and NI. They will also have to pay Employer’s NI contributions to HMRC. The new rules are not back dated.

Medium and large businesses are defined as those with two or more of the following:

  • Fifty employees or more
  • Turnover more than £10.2m
  • Balance sheet total higher than £5.1m

What do people need to do?

The end client must provide contractors with an employment assessment called a Status Determination Statement and supply the reasons behind their assessment. The contractor will be able to dispute the determination if they disagree with it, using their client’s status disagreement process. Clients must have this process in place for 6 April and are required to respond to disagreements within 45 days.

The government website has information on how the changes impact all the affected parties.