For more than 20 years, we have become accustomed to the IR35 rules. However, these have now been redrawn and renamed as “off-payroll working.”

What Changes Can Contractors Expect?

In the public sector, the end client (the engager) determines whether the off-payroll rules apply to a contract operated by a personal service company (PSC). This also applies to contracts made with large to medium-sized private sector engagers starting from the 6th April 2021.

It will be the responsibility of the engager to decide whether contracts via PSCs meet the off-payroll rules. These rules only apply to work performed after the 5th April 2021, not to the contractor invoices paid after this date.

In the instance where the engager concludes that the rules are not met, the contractor’s invoices will need to be paid under PAYE with tax and NIC deducted. The engager will then need to 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.

Any contractors who only provide services to small private businesses will not see any amendments to their working relationship with clients. This means that the engager will need to tell its contractors whether they fall under the small entity category.

Contractor With Client

Will There Be Any Penalties?

For the first 12 months, HMRC has confirmed that it will not impose penalties, providing that the engager has taken reasonable care to apply the new rules correctly. However, if the engager or other entity in the chain has deliberately gone against the rules, penalties will be raised.

It will be important to keep in mind that individual contractors will have limited powers or rights under these new rules. All they will be able to do is ask for a review of the status determination made by the engager.