Changes to the application of the IR35 rules (known as off-payroll working) were due to come into effect from 6 April 2020 but due to the COVID-19 pandemic those changes have been deferred until April 2021. The reforms apply where a worker supplies his or her services through a personal service company (PSC) to a large private sector engager (the customer at the end of the chain).

Currently it is down to the worker to decide whether IR35 applies to their contracts and if it does the PSC deducts PAYE and NIC from amounts paid to the worker. From April 2021 under the off-payroll rules the customer will be responsible for deciding whether IR35 applies to the contract and will issue a ‘determination’ to the worker informing them of the outcome of that decision.

Where IR35 does apply, the invoice from the worker’s PSC must be paid after deduction of PAYE and employees’ NIC. Employer’s NIC should be paid directly to HMRC by the customer. Some large companies have already made determinations for their contractors but those decisions do not have to be implemented until 6 April 2021.

If the customer is a ‘small’ company or partnership in the private sector the off-payroll working rules will not apply and IR35 will be operated as it is now with the worker deciding whether it applies. We can help you decide whether your customer will be categorised as small or not.

Where the customer is a public sector body (of any size) it is the customer rather than the PSC which must determine whether IR35 applies, as has been the case since April 2017.

Resources

Rules for off-payroll working from April 2021

Last updated: April 29th 2021.