A worker operating through their own limited company or Personal Service Company (PSC) was previously responsible for determining their own tax classification as either an employee or consultant for tax purposes.
What’s changing for contractors?
From 6 April 2021, the burden for assessing the tax status of these contractors falls on the company receiving services from the worker, the “end user”, where there is no intermediary company such as a staffing agency. Where a contractor who engages directly with the end user and is deemed to be an employee for tax purposes, the end user is also responsible for payroll withholding taxes and employer and employee National Insurance Contributions (NICs).
The changes are designed to capture medium and large enterprises engaging contractors and remunerating them “off payroll”; however, the new rules will only apply if you meet two of the following criteria as a whole group:
- if your business has more than 50 worldwide employees;
- worldwide revenue of more than £10.2M; or
- a balance sheet exceeding £5.1M.
For internationally headquartered companies and multinationals, this may mean your company qualifies, despite your UK operations being ‘small’.
Evaluating the status of your contractors
You will need to assess the arrangements you have with all contractors working past April 2021. The UK Government has launched the CEST tool to help you with this assessment; however, its accuracy has been questioned. We would therefore recommend seeking advice from an expert to help you assess your workers.
Preparing SDS Forms
For every engagement you have with a PSC, you will need to issue a Status Determination Statement (SDS) which confirms the status of the role and the reasons behind your decision. In some cases, a contractor may dispute your determination, in which case you may need to follow dispute resolution procedures.
Further detailed guidance on understanding the off-payroll working rules if you are receiving services from a worker through their intermediary is provided on the Government website.
Given the complexity of the IR35 rules and the number of additional obligations placed upon companies engaging with contractors, it is important to act quickly to reduce the risk of non-compliance. Contact Tim Baker to discuss how we can help.