April 2021 changes to off-payroll working for clients

Overview

Off-payroll working rules change on 6 April 2021 and are applied differently. From this date, all public authorities and medium and large-sized clients will be responsible for deciding the employment status of workers (sometimes known as contractors).

Who the rules apply to

Some rules already apply to all public sector clients, but from 6 April 2021 medium and large-sized private sector clients also need to apply them. The private sector includes third sector organisations, such as some charities.

The rules apply to all public sector clients and private sector companies that meet 2 or more of the following conditions:

you have an annual turnover of more than £10.2 million

you have a balance sheet total of more than £5.1 million

you have more than 50 employees

Balance sheet total means the total amounts shown as assets in the company’s balance sheet before deducting any liabilities.

This is in line with the small companies’ regime.

Simplified test

A simplified test also applies to some clients and considers annual turnover. You must apply the rules if you have an annual turnover of more than £10.2 million and are not:

a company

a limited liability partnership

an unregistered company

an overseas company

There are also rules which cover connected and associated companies. If the parent of a group is medium or large, their subsidiaries will also have to apply the off-payroll working rules.

When you need to start applying the rules

Public sector clients

You must continue to apply the rules when the changes come into force on 6 April 2021. However, from this date there are extra responsibilities that will affect you.

Private sector clients

If you meet the simplified test conditions you must start applying the rules when the changes come into force on 6 April 2021.

If you use the simplified test to determine your size, you must apply the rules from the start of the tax year following the end of the calendar year when you met the conditions.

If you do not use the simplified test and do not meet the conditions on 6 April 2021, your circumstances may later change. If you then meet the conditions for 2 consecutive years, the date you need to apply the rules will be different. You must apply the rules from the start of the tax year following the end of the filing period for the second financial year when you met the conditions.

What you need to do as a client

You’ll need to decide the employment status of every worker who operates through their own intermediary, even if they are provided through an agency.

You should communicate your determination using a Status Determination Statement (SDS).

An SDS must:

be passed to the worker and the person or organisation you contract with

give your conclusion and the reasons for coming to it

You must take reasonable care when making a determination. You can issue an SDS before 6 April 2021 if the rules apply.

You’ll also need to:

make sure you keep detailed records of your employment status determinations, including the reasons for the determination and fees paid

have processes in place to deal with any disagreements that arise from your determination

confirm the size of your organisation if asked by the person or organisation you contract with, or the worker

If you are also the fee-payer and the off-payroll working rules apply, you will need to deduct and pay Income Tax and National Insurance contributions to HMRC.

You can use the Check Employment Status for Tax service to help you decide if the off-payroll working rules apply.

Small-sized private sector clients

If you’re a small-sized client in the private sector you’ll not have to decide the employment status of your workers. This will remain the responsibility of the worker’s intermediary (usually a limited company). However, you must confirm your size if asked by the person or organisation you contract with, or the worker. This is to make sure that you, agencies and workers can consider what rules apply.

Taking reasonable care when making a determination

You must take reasonable care when you make a determination about the employment status of a worker.

Failure to do so will result in the worker’s Income Tax and National Insurance contributions becoming your responsibility.

Read more about taking reasonable care in the HMRC Employment Status Manual.

Who to tell about your determination

From 6 April 2021 you must tell the worker and the agency, or other organisation you contract with, your determination. Do this whether your determination shows that the off-payroll working rules will apply or not.

You must also provide reasons for your determination.

The responsibility for deducting Income Tax and employee National Insurance contributions, and paying employer National Insurance contributions, is yours until you tell the worker and the person or organisation you contract with of your determination and the reasons for it.

If the working practices of the engagement change or you negotiate a new contract with the worker, you need to make sure that you re-check the rules to see if they still apply.

An engagement is the specific contract or piece of work that a worker is undertaking. For each engagement, whether the off-payroll working rules apply is determined by the:

terms and conditions

working practices

When a client is overseas

If your organisation is based wholly overseas the off-payroll working rules do not apply. The worker’s intermediary (usually a limited company) will be responsible for determining if the rules apply.

Your organisation is classed as overseas if it does not have a UK connection.

You will have a UK connection if you either:

are resident in the UK

have a permanent establishment in the UK

What to do if a worker or deemed employer disagrees with your determination

A worker or deemed employer may disagree with the employment status determination you reached.

If this happens you will need to:

consider the reasons for disagreeing given to you by the worker or agency paying their intermediary

decide whether to maintain the determination if you feel it is correct and give reasons why - or provide a new determination because you feel it was wrong

keep a record of your determinations and the reasons for them, as well as records of representations made to you

confirm which date your determination is valid from

A disagreement can be raised with you until the last payment is made for the worker’s services.

You must provide a response within 45 days of receiving notification that the worker or deemed employer disagrees with your employment status determination. During this time you should continue to apply the rules in line with your original determination.

You must introduce a process from 6 April 2021 to make sure you consider your worker’s views if they disagree with your decision.

After considering a disagreement

You should either tell the:

worker if your determination has not changed

deemed employer and the worker if your determination has changed

Failure to respond within 45 days will result in the worker’s Income Tax and National Insurance contributions becoming your responsibility.