The IR35 reforms (off-payroll rules) have been in place in the public sector since April 2017 and were due to be implemented in the private sector in April 2020. Due to the impact of COVID-19, the private sector implementation has been delayed by a year.
Many public sector bodies have incorrectly assumed that the new IR35 reforms will not affect them, and only private sector business will need to chance. In this blog, we will look at how the IR35 reforms will impact all organisations irrespective of status, and what they need to do to be ready for April 2021.
What is IR35 and the Off-Payroll Working Rules?
IR35 is the tax legislation relating to ‘off-payroll workers’ – those workers engaged by an organisation through an intermediary such as the agency, umbrella payroll provider or PSC (the worker’s own limited company).
The off-payroll working rules deem that where an individual would have been an employee if they were providing their services directly, they pay broadly the same tax and National Insurance contributions as an individual employed by the end client.
What has changed?
The change in the public sector from April 2017 meant that it became the responsibility of the end client to decide whether the off-payroll working rules apply, rather than the decision of the individual worker.
New changes to the off-payroll rules were due to come into effect on 6th April 2020. This has now been delayed until April 2021 because of the spread of the coronavirus (COVID-19) pandemic. The delay is to help businesses and individuals deal with the economic impact of COVID-19.
What is changing in April 2021?
From April 2021, all public and private sector clients (with the exception of small businesses) will be responsible for deciding the employment status of workers. There are some additional responsibilities for organisations that come into effect on this date, which means they need to:
- pass their determination and the reasons for the determination to the worker and the person or organisation they contract with
- make sure that detailed records of employment status determinations are kept, including the reasons for the determination and fees paid
- have processes in place to deal with any disagreements that arise from determinations
Reasonable care must be taken when making the determination of the worker’s employment status.
Application of off-payroll working rules
Prior to the implementation of the new rules, the following activities will need to be undertaken in order to be compliant with the new requirements:
- for current workers, pass the reasons for the IR35 determination to the worker and keep detailed records of these
- for new roles, pass the IR35 determination and reasons for the determination to the agency provider to be held
- have an appeals processes in place to deal with any disagreements that arise from your determination
Taking reasonable care is advised when making the determinations.
Making and recording the determination
Determinations should be made by those closest to the worker in the hiring process, ie. the line managers or HR business partners. Consideration needs to be given to who in the approval chain makes the determination within the client.
Once the determination has been made, the outcome and reasons for determination must be stored, and the outcome should also be recorded with the relevant agency provider.
For more information or support you can contact our HR Team at [email protected] or keep updated on recruitment and other procurement services on our Twitter at @ypoprocurement.