From the 6th April 2021, the off-payroll working rules will change. With this in mind, we wanted to walk you through the changes, what they mean and consider the different approaches to take to adjust to these changes.
Prior to 6th April 2021, if your worker provides services to a client via you:
- In the public sector, the client decides your employment status
- In the private sector, you decide your worker’s status
This means all public sector clients and medium or large-sized private sector clients are responsible for deciding your worker’s employment status. This will also include some charities and third sector organisations.
If these off-payroll working rules apply to you, your worker’s fees will be subject to tax and national insurance.
What Do These Changes Mean?
If your workers provide their services to a public sector or medium/large-sized private sector client, they will:
- The worker should get an employment status determination from the client, along with the detail on why this determination has been made
- The worker can then dispute the determination given to them if they disagree
Naturally different rules will apply if your worker:
- Doesn’t receive an employment status determination from the client
- Provides services to small clients in the private sector
Originally these changes were due to take place in April 2020 but due to the timing of the rollout coinciding with the pandemic, the date got pushed back to April 2021. Naturally, HMRC placed priority on other tasks related to emergency business support combined with businesses needing to push IR35 to the bottom of their priorities list.
In the lead up to April 2020 changes, many businesses were attempting to manage the changes using the HMRC Check Employment Status for Tax tool, with HMRC staff answering business queries and issuing determinations.
However, this time around it would seem fewer businesses are taking this approach and instead outsourcing this work to external experts who can guide them through the assessment process.
There are some factors as to why businesses are taking this approach:
- The CEST tool was very simple which meant it was also very basic, businesses using the CEST tool found they did not understand their outcome and with little to no explanation provided beyond the outcome were left totally perplexed and not sure what to do next.
- Businesses did not receive the extended benefits which come with an IR35 consultancy service.
- Businesses using the CEST tool in 2020 encountered significant contractor challenges and were unable to pivot successfully to deal with these challenges, due to a lack of resources or expertise. This impacted on their supply chain, reporting a negative impact on relationships with contractors.
- HMRC have implemented a new policy which states if you use CEST incorrectly you will be liable for fines and penalties. With hundreds of pages of guidance on the HMRC website surrounding the topic of CEST, HMRC will not accept ignorance or lack of knowledge on the subject as an excuse for incorrect use of CEST.
- HMRC further states if a business engages a suitably qualified specialist to deal with their assessment process and follows HMRC advice, the business has done all which is reasonably possible to meet the CEST requirements and will not be liable to receive penalties or fines, due to taking reasonable care. Naturally resulting in businesses seeking external expert advice.
We believe the delay is to allow time for HMRC to publish more detailed guidance and allow the market to catch up and provide the necessary specialist services to assist businesses.
The application process must be dealt with properly and therefore it is a job in itself, which is why most businesses will still not have had time to be any more prepared for these changes.
If you’re struggling to wrap your head around these IR35 changes, contact our specialist team today.