HMRC has issued new guidance for fee-payers, intermediaries and engagers to assist with the operation within the revised rules for off-payroll working, which come into effect on 6 April 2020.
The off-payroll rules, otherwise known as IR35, will operate with two parallel systems for application, which will be used depending on whether the end client of the contract worker is;
- A small private sector organisation or
- A public sector body, or medium or large organisation in the private sector
In the case of a small private sector organisation, the worker’s intermediary (their personal service company) will determine the employment status of the worker to assess whether tax and National Insurance (NI) deductions should be made as if the worker was an employee.
For a public sector body or a medium or large organisation in the private sector, the determination will be made by the engager.
The criteria for a small private sector organisation are based on company law, but they also apply to unincorporated organisations such as charities and individuals.
An engager that meets two of the following conditions for the financial period that ends in the previous tax year is regarded as small:
- No more than 50 employees
- Less than £5.1 million balance sheet total
- Less than £10.2 million annual turnover
The HM Revenue & Customs (HMRC) guidance does not clarify how the contractor, or their personal service company, will know whether their engager is considered small, other than when they fail to receive an employment status determination.
For help and advice on the upcoming changes to the IR35 rules, contact our expert team today.