Off-payroll working rules (IR35) have been the subject of much debate over the last year. After a delay in 2020 due to COVID-19, the new IR35 rules will go into effect on 6 April 2021. Personal Service Companies (PSCs) will no longer manage tax withholding and compliance for independent contractors – the burden will now be placed on the company hiring the independent worker. The complex tax and payroll regulations will make it difficult for many companies to maintain compliance.
The original idea for the new rules was to ensure workers employed as contractors are paying the same amount of tax and National Insurance contributions as employees of the company. All public sector companies and medium and large private sector companies with annual turnover of more than £10.2 million (or balance sheets greater than £5.1 million) and more than 50 employees will have to manage the new IR35 rules accordingly. Small companies that are a subsidiary that meets these thresholds must also comply with the new rules.
Companies must take several steps to ensure compliance with the new rules:
Determine the employment status of independent contractors, and use a Status Determination Statement (SDS) to submit to HMRC
Must take “reasonable care” when determining the contractor status or face the responsibility of the contractor’s tax and National Insurance contribution
Keep detailed records of employment status
Create process to handle any potential issues related to employment status determination
Confirm size of organisation to contractor (if asked)
Deduct and pay tax and National Insurance to HMRC if the off-payroll rules apply
Prepare your payroll process for the new IR35 rules beginning in April by starting with a payroll audit. Are there manual processes that can be automated? Are you using spreadsheets or email to manage payroll? Using cloud-based payroll software can quickly eliminate errors and manual processes, ensure compliance, and direct file with HMRC.
Payescape has created one platform to manage payroll for your employees, with integrated HR admin software, customised reporting, and more. Our CIPP-certified team can help you make sense of the new off-payroll rules, ensure compliance, and simplify your monthly payroll. Talk to us today about reducing time spent on payroll admin – click here to get started
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