The IR35 rules have been around for over 20 years but those rules have been redrawn and renamed 'off-payroll working'. In the public sector the engager (the end client) determines whether off-payroll working applies to a contract operated by a personal service company (PSC).

This will also be the case for contracts with large and medium-sized private sector engagers from 6 April 2021. The engager will have to determine whether contracts operated through PSCs fall under the off-payroll rules or not. The private sector off-payroll rules only apply to work performed after 5 April 2021, not to all contractor invoices paid after that date.

If the engager determines that the rules do bite, the contractor's invoices must be paid under PAYE with tax and NIC deducted and the engager must pay the employer's NIC. The entity that pays the PSC (usually the employment agency) is responsible for deducting and paying PAYE and NIC due on the contractor's fee.

Contractors who only offer their services to 'small' private businesses will see no change in their working relationship with their clients. The engager should tell its contractors whether it is classified as a small entity or not.

HMRC has said it will not impose penalties in the first 12 months where the engager has taken reasonable care to apply the rules correctly. However it will raise penalties where the engager or other entity in the chain has deliberately not applied the off-payroll working rules.

Individual contractors have little powers or rights under off-payroll working rules other than to ask for a review of the status determination made by the engager.

Last updated: April 29th 2021.