This article is aimed at providing a basic understanding of the off payroll working rules. It is a general article and each individual circumstance may be different. If you require further information, you can contact us here.
What does it mean?
This is a term given to a set of anti avoidance rules which targets disguised remuneration. Its purpose is to ensure that contractors working for a company pay tax and national insurance like employees. The contractors, however, would not have the same rights as employees under employment law.
HMRC have provided an online tool where companies can check the status. This can be found here.
Until 2017, it was the worker who was responsible to determine the status, however, after April 2017, it is the responsibility of the hiring company (Public Authority) to determine the status.
How do you establish employment status?
| Criteria | Employed | Not Employed |
| Contract | There is a contract of employment in place | No contract of employment in place |
| Place of work | The employer decides the place of work | The contractor decides the place of work |
| Substitution | No substitution allowed i.e worker has to do the work themselves | The contractor can send a substitute to do the work |
| Salary | Worker paid a fixed daily/weekly/monthly salary | Contractor provides an invoice for the work done |
| Tools and equipment | Provided by the employer | Provided by contractor |
| Losses suffered | Worker does not bear any loss | Contractor bears the losses |
| Liability to correct | Worker does not have to correct the work in their own time and expense | Contractor has to correct work in their own time and expense |
Changes from 6th April 2021
From 6th April 2021, the rules regarding the off payroll working will change.
All public sector authorities and Medium and Large private sector companies will be responsible for determining the status and whether the IR35 rules apply or not.
For small private sector companies, the onus will be on the contractor’s intermediary to determine the status and if the rules apply. It is important to note that each contract needs to be reviewed individually where there is more than one contract with the same worker.
If the off payroll rules apply, the worker’s pay will be subject to income tax and national insurance contributions. The worker will have to be included within the company’s payroll and PAYE/NIC will be deducted (net of materials and vat) from the invoiced amount and the net pay transferred to the worker’s company. A P45 or P60 would need to be issued accordingly.
See a worked example provided by HMRC here.
If you require more information and help with the off payroll working rules, please do not hesitate to contact us on 0121 445 8055 or email us at [email protected]
