Are you ready for Off-Payroll working? What clients and candidates in the private sector need to know about the latest IR35 reform

Are you ready for Off-Payroll working? What clients and candidates in the private sector need to know about the latest IR35 reform

On April 6th 2021, new rules for IR35 will come into effect across the private sector. Ilana Samuels, Operations Manager at Odgers Interim, discusses the changes and explains what candidates and clients need to know now

A year after it was delayed, new reforms to IR35, most commonly referred to as off-payroll working legislation, will come into effect on April 6th, 2021.

Introduced in 2000, IR35 was brought about to ensure that temporary workers pay the correct income tax and make national insurance contributions in line with permanent employees. Amended several times by HMRC over the past two decades, new changes to IR35 will now also apply to the private and third sectors. What does that mean for clients and candidates?

IR35 – what is it and who does it apply to? A recap

IR35 relates to interim managers, and potentially independent consultants, who offer their services, through either their own limited company or via another type of intermediary.

Having had numerous alterations to how the rules are applied since they came into effect, the most significant change was implemented across the public sector in 2017, with the introduction of the off-payroll working rules in the public sector, making it the responsibility of the end user, the client, to determine the employment status of an interim role and whether it fell inside or outside the legislation.

If the off-payroll working rules apply, and a worker is deemed an employee for tax purposes, Income Tax and National Insurance contributions must be paid to HMRC, alongside, if applicable, the Apprenticeship Levy.

IR35 reform to include private and third sector

From April 6th of this year, the off-payroll working rules will also apply to the private and third sectors. HMRC further amended the legislation so that in addition to companies classified under the freedom of information act being affected, the rules will apply to all medium to large organisations with small companies being measured by the criteria of the Companies Act of 2006. As for the public sector, all clients in the private and third sectors will now be required to issue a Status Determination Statement to the candidate, determining whether they fall inside or outside the legislation.

This change faced some criticism ahead of its implementation in 2017, however, we have found more interims have been placed across the public sector since the legislation came into effect. One of the reasons for this could be that apart from the government’s CEST (Check Employment Status for Tax) tool, insurance providers like Qdos Contractor have made it much easier to determine the status of a role and provide both client and candidate with more certainty and less risk. As an interim recruitment firm, Odgers Interim advises clients to take advantage of the safety net a provider like Qdos can offer, as it not only determines the status of the role for the client, but also underwrites any outside determinations, so if challenged by HMRC, Qdos will manage the case under its Tax Liability Insurance.

New rules to IR35 in 2021

Since the roll out of new procedures relating to off-payroll working rules was delayed last year, HMRC has made further changes to the legislation, especially around the process of determining the status of the role.

From April 6th of this year, all clients must have an internal dispute process in place to manage any disputes over the status of the role. If a dispute is filed, the client will have 45 days to respond. Having this process in place is crucial, as under the new IR35 rules, the interim will be able to dispute the Status Determination Statement if they do not agree with it. This underlines further the benefit of using an external provider, such as Qdos, as it reduces the potential of such cases occurring. To assist clients and candidates, HMRC has improved their guidelines hugely over the year, and more information on the dispute process, and all other aspects of the rules, can be found on their website.

Finally, the new off-payroll rules will apply to all services provided on or after April 6th, 2021, regardless of the date of payment for these services.

Interim hiring under the new off-payroll rules

With the new changes to off-payroll coming into effect across the private and third sectors on April 6th, it is particularly important that clients and candidates are kept informed about their respective responsibilities. Every consultant and partner at Odgers Interim will be advising both parties throughout the hiring process about the new rules and offer guidance as to the best steps to determine the status of the interim role. In addition, we have additional resources to help clients and candidates with any questions they might have about IR35, including our podcasts, webinar series recordings and some useful crib sheet documents.

However, should you have any immediate questions about the new off-payroll legislation, please contact Ilana Samuels.

Comments

Mr John D Harvey at 31/03/2021 17:15 said:

It would be useful to set out the exemptions for smaller companies and organisations; do these new rules only apply to companies with annual turnovers higher than £10m or with less than 250 employees?

Michael Illingworth FCA at 31/03/2021 17:31 said:

Thank you for this informative briefing and the introduction to Qdos Contractor. It makes a lot of sense, it is very reassuring, that Odgers will be advising both parties during the hiring process to smooth out any anomalies that might arise in determining the status of the interim role. This is not necessarily a straightforward subject.

Ilana Samuels at 31/03/2021 18:48 said:

Hi John, thank you for your note. For a company to qualify as medium to large sized, two or more of the following conditions must be met for two consecutive financial years:

- Annual turnover of more than £10.2 million
- A balance sheet total of more than £5.1 million
- More than 50 employees

The new rules will affect private sector companies who fit this criteria.

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