Off-payroll Working Rules (IR35) FAQs
What are Off-Payroll or IR35 Rules?
The off-payroll working rules are designed to ensure individuals working like employees but through their own limited company (often known as a ‘personal service company’ or ‘PSC’), or other intermediaries, pay broadly the same Income Tax and National Insurance contributions (NICs) as individuals who are directly employed. These rules are commonly known as ‘IR35’.
IR35 Changes From April 2021
From 6 April 2021, the way many contractors pay tax will change. These changes will apply to all payments made for services provided on or after 6 April 2021.
Full details of the new rules IR35 are available with government IR35 guidelines for contractors and fee payer responsibilities.
HMRC has provided further guidance to support organisations to comply with changes to the off-payroll working rules (IR35)
Frequently Asked Questions
Below we answer some of your more 'Frequently Asked Questions' about the new IR35 rules
- Who is responsible for determining employment status via the Check Employment Status for Tax Tool (CEST)? The business contracting the PSC
- Who has to pay the tax and NI over to HMRC? The business contracting the PSC via the normal payroll process
- What rules apply to the employees who fall into IR35 e.g. AE/statutory payments/student loan? Only PAYE and employee and employer NICs apply to these services
- If I have an existing payroll, do I use the same PAYE reference or do I have to have a separate PAYE reference for IR35 payrolls? You can choose, but be mindful of the payroll frequency, so if monthly and you wish to pay weekly, then whilst you can use the same PAYE scheme, you would need another payroll set up for weekly, which will likely incur a cost for set up and processing if using a payroll service provider. Please note you will need to provide the off-payroll worker with a New Starter Checklist for determining the tax code as you would for any other employees. Most of the time you will expect the tax code to be BR
- Will the off-payroll worker receive Employment Allowance or Apprenticeship Levy Allowance? You must include the deemed earnings of the off-payroll worker in the calculation for the payroll bill when determining the apprenticeship levy. However, the employment allowance cannot be used against any payments to deemed employees.
- What will the payroll team need from us if there is an IR35 worker? Armstrong Watson payroll clients will receive a template
- If the PSC disagrees with the outcome, what happens next? They can challenge the decision, but they must indicate why they disagree with their determination
A business has 2 PSCs in contention for the same job, one charges £45 per hour and would be their preference, the other charges £35 per hour. They put the higher charging PSC through CEST and he is determined as an IR35 worker. If that PSC then disagrees with the decision, can they just switch to using the lower charging PSC who has no objection to the CEST tool determination, or is there an obligation on them to see an appeal process through with the higher charging PSC? It is up to the business requiring the services of the PSC who they choose to do the work
Further IR35 Legislation Information
For further details on IR35 legislation please refer to our previous IR35 Legislation Overview article