Posted on July 28th, 2021
Changes to Off-Payroll Working (IR35) Legislation Effective from 6th April 2021
IR35 is the description commonly used to refer to the Off-Payroll working tax legislation introduced by the HMRC which was originally given legal effect in the Income Tax (Earnings and Pensions) Act 2003. The intention of the legislation is to ensure that individuals working by way of an Intermediary to provide services, who would otherwise be deemed employees (often referred to as “disguised employees”), pay the same income taxes and national insurance contributions as employees.
Originally the obligation for IR35 compliance rested with the Intermediary rather than the Hirer or End-User of the services. HMRC identified that a significant proportion of IR35 status determinations were made incorrectly and in April 2017 amended the legislation as it applied to the public sector, switching the responsibility for the status determination from the Intermediary to the Public Authority.
In October 2018, the Government announced its intention to extend the changes in legislation to the private sector. The change was due to come into force in April 2020, but due to the COVID-19 pandemic, the decision was taken to postpone its implementation for 12 months. An amendment to further delay the legislation was defeated in Parliament and the Finance Bill passed its final reading in June 2020. Consequently the legislation came into effect on 6th April 2021.
The change in legislation switched the responsibility for determining the tax status of individuals providing services to the Private Sector by way of an Intermediary (e.g. a limited company) to the End User of those services.
PM Group actively followed the developments from the time the changes were originally announced and engaged with a UK industry expert in employment law, recruitment and personal tax to review all current procedures and to advise us in anticipation of the introduction the revised legislation.
As a Project Management and Engineering Consultancy business, PM Group supplements its permanent Staff using a retained network of specialist Independent Consultants many of whom provide their services via an Intermediary. Where such individuals are engaged to provide services as part of an overall project scope being delivered for our clients, we are the End-User of these services and hence it is PM Group who are responsible for undertaking the status determination of the Intermediary and not our clients.
If, however, PM Group supply Independent Consultants to clients under an Outsourced Technical Services or Secondment type agreement our client is deemed to be the End-User and hence is responsible for making the status determination. In such cases we are able to assist our clients in conducting the Off-Payroll Working (IR35) assessment.
Under the legislation, End-Users have a duty to demonstrate “reasonable care” in carrying out Status Determinations and therefore, PM Group has conducted a thorough review of all engagement processes and day to day ways of working and have updated these accordingly. We have in place a suite of IR35 compliant contracts for the engagement of Independent Consultants to cover both Status Determination outcomes i.e. “Inside IR35” or “Outside IR35”. Consequently, we have been able to retain our network of specialist Independent Consultants, minimise the additional internal administrative burden resulting from the changes to the legislation and, most importantly, eliminate any impact on service delivery for our clients.
Given our experience in this area, we would be very happy to pass on our knowledge to any clients that need support to ensure their own compliance with this legislation.