Where a worker provides their services to a client using an intermediary, such as a personal service company, it is required that the nature of the arrangement is reviewed to determine whether the off-payroll rules apply. These rules apply to arrangements where, if the worker were to be engaged directly and not through the intermediary, they would be deemed to be an employee. Where the rules apply, those who would have been an employee if they were providing their services directly to the client, suffer largely the same income tax and national insurance contributions as employees.
From 6 April 2017, measures were introduced so that clients who were public sector bodies became responsible for deciding if these rules applied to any arrangement they had with workers providing services via an intermediary. From 6 April 2021, this was expanded so that medium and large-sized private sector clients also became responsible for deciding if the rules apply, which increased the compliance burden for many businesses in the UK. Clients would have to communicate this decision to the intermediary by making a Status Determination Statement (“SDS”). These changes also meant that it is the end-clients responsibility for ensuring that the PAYE and national insurance contributions were correctly accounted for.
These reforms led to a huge administrative burden for companies affected.
The chancellor announced that the 2017 and 2021 reforms to the off-payroll working rules will be repealed from 6 April 2023. This means that from the start of the 2023/24 tax year, workers who provide their services via an intermediary will be responsible for determining their employment status and ensuring that the appropriate amount of tax and NICs are paid. This could provide for an interesting and potentially tricky scenario where work under a contract continues into the 2023/24 tax year, and the intermediary comes to a different conclusion after self-assessing the situation than the SDS determined by the end client, and we await further guidance from HMRC in this respect.
This measure is intended to free up time and money for businesses that engage contractors, whilst also minimising the risk to genuinely self-employed workers being impacted by the off-payroll rules.