The off-payroll rules themselves are not changing from April 2021 and employment status will still be determined using the same IR35 Key Status Tests. However, the way that the off-payroll working rules are applied will change. Here we look at these changes and how they will affect all parties in the supply chain.
Responsibility and Liability
From 6 April 2021, responsibility for deciding employment status will shift from the contractor to the end-client in the private sector. This change was implemented in the public sector in 2017. The off-payroll rules don’t apply when:
- The contractor does not work through a limited company
- The private sector end-client is classified as ‘small’ (Companies act 2006)
If the off-payroll working rules apply, the fee payer (usually the recruitment agency) will carry the responsibility for deducting the correct Income Tax (PAYE), National Insurance contributions and Apprenticeship Levy before paying HMRC.
The Status Determination Statement (SDS)
When making IR35 decisions, private sector companies will be required to share their reasons for a particular determination with contractors and the first recruitment agency in the supply chain. This must then be passed down the chain until it reaches the fee payer.
HMRC calls this a ‘Status Determination Statement’ (SDS) and has introduced it with the aim of increasing transparency and communication with regards to assessments. Until the client shares this with the contractor and the fee payer, they will carry the liability and therefore the risk.
Client-led Disagreement Process
The April 2020 reforms include a plan to introduce a ‘Client-led Disagreement Process’, to give contractors the chance to challenge status decisions that they believe to be incorrect. This gives fee payers and contractors the right to dispute the SDS in writing. End-clients are required to respond to this dispute within 45 days. Should they fail to do this and explain their IR35 decision, they will take on the fee payer responsibilities and therefore be liable for any unpaid tax and NICs.
Debt Transfer Process
IR35 reform introduces the capacity for HMRC to collect outstanding tax from other parties in the supply chain. The regulations authorise the recovery from a ‘relevant person’ of any amount that HMRC considers another person should have paid under PAYE regulations.
This means that if the fee payer fails to make deductions and pay the PAYE tax and NI liability, HMRC can recover the unpaid debt from other organisations in the supply chain. This is particularly important if you are the first agency in the supply chain that engages directly with the end-client.
The tax liability will initially rest with the party that failed to carry out their compliance obligations. If HMRC cannot recover the liability from them, they will move to the first agency in the supply chain. If they are unable to recover the unpaid tax from them, they will move to the end-client.
Contractors and Recruitment Agencies need to act now to ensure that they are protected from the fallout of reform. Amaze’s Umbrella service has undergone rigorous assessment to attain FCSA accreditation, giving you a fully compliant IR35 solution. Our service also offers benefits of employment that permanent staff receive as well as Perkbox* benefits, insurance cover and a seamless onboarding experience from our first-class customer service team. To speak to a member of the Amaze team see here.
*Perkbox services are available to contractors paying the qualifying service fee. Please contact us for information.