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?
|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]
This is a basic guide, prepared by ACCA’s Technical Advisory team, for members and their colleagues or clients. It’s an introduction only and should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be obtained, where necessary.
The message from the Chancellor was that this is a Budget with three aims:
- protecting the jobs and livelihoods of the British people
- strengthening the public finances
- supporting an investment-led recovery
You can read the individual measures and details of some of the numerous consultations below.
Rates and allowances
|Income tax rates (non-dividend income)|
|0% lower rate tax – savings rate only||Up to 5,000||Up to 5,000|
|20% basic rate tax||12,571 to 50,270||12,501 to 50,000|
|40% higher rate tax||50,271 to 150,000||50,001 to 150,000|
|45% additional rate tax||Above 150,000||Above 150,000|
|Scottish income tax rates (non-dividend income)|
|19% starting rate tax||12,571 to 14,667||12,501 to 14,585|
|20% basic rate tax||14,668 to 25,296||14,586 to 25,158|
|21% intermediate rate tax||25,297 to 43,662||25,159 to 43,430|
|41% higher rate tax||43,663 to 150,000||43,431 to 150,000|
|46% top rate||Above 150,000||Above 150,000|
Capital gains tax annual exempt amount (after personal allowance)
These are frozen at £12,300 for individuals and £6,150 for trusts.
The tax-free dividend allowance is unchanged at £2,000.
The corporation tax rate will remain at 19% but from April 2023 the applicable corporation tax rates will be 19% and 25%. Businesses with profits of £50,000 or below will still only have to pay 19% under the small profits rate.
Grants – restart
‘Restart Grants’ are available in England of up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for hospitality, accommodation, leisure, personal care and gym businesses
Grants – export
The SME Brexit Support Fund grant provides up to £2,000 to help with training or professional advice.
Enhanced capital allowances: super deduction
This introduces increased reliefs for expenditure on plant and machinery. For qualifying expenditures incurred from 1 April 2021 up to and including 31 March 2023, companies can claim in the period of investment:
- a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main-rate writing-down allowances
- a first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances
Annual investment allowance (AIA)
Companies will be able to claim £1m as AIA for expenditure incurred from 1 January 2019 to 31 December 2021. The announcement was made in November and before the ‘super deduction’.
Apprenticeship incentive payments for employers will increase to £3,000 per new hire until September 2021.
Making tax digital (MTD)
There were no announcements on MTD except that the government will publish an evaluation on the introduction of MTD for VAT, expected on 23 March.
The VAT registration and deregistration thresholds will not change for a further period of two years from 1 April 2022.
The reduced rate of VAT of 5% to the hospitality, holiday accommodation and attractions sector is extended until 30 September 2021. After this date, the VAT rate will be 12.5% to the end of 31 March 2022, before returning to the standard rate of VAT of 20% from 1 April 2022.
Businesses with outstanding VAT from last year may join the VAT deferral new payment scheme to spread their payments. The online service is open until 21 June 2021.
Coronavirus Job Retention Scheme (CJRS)
An extended version of the CJRS provides further support for employees until the end of September 2021.
Self-Employment Income Support Scheme (SEISS)
A fourth grant will open from late April and will be available until 31 May 2021, and will include those self-employed in the tax year 2019/20, with the SEISS being available for a 5th grant until September 2021 based on turnover.
Trading losses will have more flexibility to carry them back over three years. This applies only for losses incurred by companies for accounting periods ending between 1 April 2020 and 31 March 2022, and for individual for trade losses of tax years 2020/21 and 2021/22.
The lifetime limit on gains eligible for entrepreneurs’ relief is £1m for qualifying disposals.
Employment allowance reform
The allowance is £4,000 but continues to be limited to employers with an employer NIC bill below £100,000 in the previous tax year.
Statutory sick pay (SSP)
Small and medium-sized employers across the UK will continue to be able to reclaim up to two weeks of eligible SSP costs per employee. As with other pandemic-related business support schemes, the government will set out steps for closing this scheme in due course.
From 1 April 2021, SMEs applying for R&D tax credits will be eligible to a maximum of £20,000 in repayments per year plus three times the company’s total PAYE and NIC liability.
Inheritance tax (IHT)
The nil-rate band remains at £325,000. The residence nil-rate band for deaths in the following tax years are:
- £100,000 in 2017/18
- £125,000 in 2018/19
- £150,000 in 2019/20
- £175,000 in 2020/21
- £175,000 in 2021/22
Time to pay
Taxpayers can set up a payment plan online via GOV.UK.
The pension lifetime allowance will remain at its current level of £1,073,100 until April 2026.
100% relief for businesses in retail, hospitality and leisure in England continues until June 2021. From July 2021 to March 2022, these business will pay a reduced rate of 33%. Businesses in England closed due to national lockdowns from 5 January 2021 onwards, or between 5 November and 2 December 2020, may be eligible for grants.
Interest relief for landlords
Landlords will be able to obtain relief as follows:
|Finance cost allowed in full||Finance cost allowed at basic rate|
|Year to 5 April 2020||
|Year to 5 April 2021||0%||
Stamp duty land tax (SDLT)
Non-UK residents are to pay 2% surcharge SDLT on residential property purchases from April 2021. The SDLT nil-rate band of £500,000 for residential property purchases in England and Northern Ireland will be extended to June 2021, reducing to £250,000 from July to September and reverting to £125,000 from October 2021.
Annual tax on enveloped dwellings (ATED)
The ATED charges increase automatically each year in line with inflation (based on the previous September’s Consumer Prices Index).
|Annual tax on enveloped dwellings (ATED)|
|More than £0.5m but not more than £1m||
|More than £1m but not more than £2m||
|More than £2m but not more than £5m||
|More than £5m but not more than £10m||
|More than £10m but not more than £20m||
|More than £20m||
ACCA LEGAL NOTICE
This is a basic guide prepared by ACCA UK‘s Technical Advisory Service for members and their clients. It should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be obtained, where necessary.
If your organisation has a turnover of the minimum VAT threshold (£85K), it is mandatory for your organisation to submit your VAT under Making Tax Digital rules for VAT quarters starting after 1st April 2019.
This article is linked to three others that look in detail at social enterprises and their taxes, paying workers and social enterprise & investment relief for social enterprises.