Payroll Tax Changes For Contractors Finally Set To Take Effect From April

Posted by Liz Seyi on February 4th, 2021

After a delay to the originally intended start date of April 2020 in the wake of the coronavirus crisis, changes to off-payroll working rules (IR35) will finally come into force from April 2021. 

The new rules, now re-launched by the British government, will force some freelance workers onto companies’ books. This is because of the need for companies to decide whether a worker paid through an intermediary – such as a personal service company (PSC) – for income tax purposes can be considered to be, in effect, a direct employee. 

If the answer to that question is “yes”, the company will need to deduct tax and social security payments for that contractor, and pass them on to HM Revenue & Customs (HMRC). 

HMRC guidance states that the postponed rules will now take effect from 6th April. 

What is the thinking behind the changes? 

The new off-payroll working rules enable HMRC to impose further taxes on contractors that are deemed to be ‘de facto’ employees – for example, because of working a full-time schedule like an employee, despite not having signed an employment contract. 

The motivation for the change is to ensure workers who are effectively employees cannot use false self-employment as a tax avoidance measure. 

What organisations are affected by the new rules? 

All public sector organisations and private sector companies that meet two or more of the following conditions are subject to the IR35 changes: an annual turnover exceeding £10.2 million; a balance sheet total of over £5.1 million; having more than 50 employees; not being a limited liability partnership; not being an unregistered company; and not being an overseas company. 

How can your organisation prepare? 

Given the extra responsibilities and costs that the new IR35 rules will represent, it is important for all organisations that meet the above criteria to begin preparing now. 

The importance of acting now is underlined by the findings of a recent poll of more than 3,000 contractors reported by Contractor Calculator, indicating that 52 per cent of those currently in work were yet to have their IR35 status assessed by their client. 

Indeed, the required steps for affected organisations to take include providing their contractor workers and any third parties with a statutory status determination statement, which sets out the organisation’s decision on the worker’s employment status. 

Another step your organisation might take in readiness for 6th April is assessing whether now might be the time to outsource your firm’s payroll responsibilities. 

Sure enough, here at Britebooks, we can provide the efficient and stress-free payroll services in Plymouth and Wellington that will help free up your business to focus squarely on doing what it does best in 2021. Simply reach out to us now for further information about our cloud-based service. 

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Liz Seyi

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Liz Seyi
Joined: August 13th, 2019
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