19.5.2021 | Tax

Off-payroll working – and how changes in law could affect you

Ramifications across all sectors, including transport and logistics. 

Off-payroll working has become headline news recently, with change in the IR35 laws set to affect businesses and workers across the country.

From now on, large and medium-sized businesses will have to treat their off-payroll workers as if they were on-payroll, so by law have to offer sickness and holiday benefits.

It is a changeset to affect industries of all types – from logistics and freight to clerical workers and teachers.

Here, Andrew Diver, Head of Tax at Beatons group, gives his insight into how the rule changes could affect you.

What is IR35?
Essentially, IR35 is the off-payroll working rules set by the Government, introduced in 2000 to combat what is known as ‘disguised’ employment.

‘Disguised’ employment is where employees are paid as a client, via an intermediary such as their own limited company, so they can avoid paying income tax and National Insurance.

The IR35 rules were brought in to combat this.

How have the rules changed?
Earlier this year, changes were made to the IR35 rules for the private sector.

From now on, medium and large businesses will need to check all off-payroll contractors using the Check Employment Status Tool (CEST) to determine whether the contractor should be treated as an employee and PAYE deducted before payment is made to the contractor.

The rules do not apply to small businesses unless they are owned by a larger parent company.

The big change is that the onus is now on the company engaging the worker is legally obliged to check the IR35 status. Previously, where a business contracted with another company, it was the contractor’s companies obligations to consider whether PAYE would apply.

It means for firms working with several contractors; a check will have to be submitted for each by the employer.

If companies do not abide by the new rules, they could face a hefty fine.

How to avoid getting a fine
From April 2021, large and medium-sized businesses are responsible for determining whether a worker is an employee or contractor.

Businesses should review all their relationships with contractors and consultants.

To identify the employment status of a worker, the HMRC has created the CEST online tool to help out. The difficulty still arises for businesses that many of the questions in the CEST tool are subjective, and the tool itself can produce a response which states that, based on the answers, the position is inconclusive.

Be careful to maintain an audit trail as you go – as long as you stay within the rules and have evidence to back you up, you should avoid a penalty.

If you need further advice, visit beatons.co.uk