Off-payroll working rules (commonly known as IR35) changed on 6th April 2021.
In efforts to overcome IR35 responsibilities some arrangements are being promoted that indicate some client organisations would no longer be responsible for considering the off payroll working rules. These may be labelled as ‘contracted out services’ or ‘statement of works’.
It is important to fully consider any arrangements in response to changes to the off-payroll rules. Especially be cautious of any that claim they do not need to consider the off-payroll working rules.
Are you responsible for considering the off-payroll rules
Businesses and engagers must consider the off-payroll working rules for all workers (contractors) they engage who work through their own limited company (often known as a personal service company) or other intermediary, if they are a:
- medium or large sized client organisation outside of the public sector
- client organisation of any size inside the public sector
The client organisation is the person who the worker (or contractor) performs services for. In most supply chains it will be obvious who the client organisation is.
In some cases, organisations may decide to contract out activities to another organisation, often called a ‘service provider.’
Where you enter into a contract for a genuine or ‘fully’ contracted out service, you will not be the client organisation for the purposes of the off-payroll working rules. Instead, the client organisation will be the service provider, because they are the person the worker is providing their services to, it will likely be the party most similar to the worker’s employer.
Whether a contract is for a fully contracted out service is a question of fact, based upon the commercial reality of the arrangements. Where there is uncertainty as to who the true client organisation is, consideration should be given to the nature of the relevant contracts and working practices.
Organisations must make sure that they understand what constitutes a fully contracted out service if they believe they may not be the client organisation responsible for considering the off-payroll working rules, or if they are being asked to agree to these arrangements.
As a first step HMRC recommend looking critically at the services required and if it is a supply of labour then it is highly unlikely that the contract represents a fully contracted out service. They would then remain the client for the purposes of the off-payroll working rules.
If the true nature of the service being provided is a supply of labour, then any written terms will not change this fact. Talk to the service providers about the scope provided.
Service providers should discuss with customers the scope of the service they provide.
If they are providing a fully contracted out service, then they will be the client organisation for the purposes of the off-payroll working rules unless they are a small organisation outside of the public sector.
They must consider the employment status for tax of any workers they supply who work through their own limited company or other intermediary. Their customers may wish to seek assurances from them about how they are applying the rules.
If not providing a fully contracted out service, then the customer will be the client for the purposes of the off-payroll working rules. Inform the customer which of the workers will be providing services through their own limited company or other intermediary.
They should receive a status determination statement for those workers who operate this way. If the client organisation finds they are ‘inside the rules’, and if they pay these workers limited company or other intermediary themselves, they will be responsible for operating PAYE.
This means they are responsible for deducting Income Tax and employee National Insurance contributions, and paying employer National Insurance contributions and Apprenticeship Levy, if applicable, for any workers that their customer decides are employed for tax purposes for this work.
PAYadvice.UK IR35 resources