HMRC answers some common questions about meeting responsibilities under changes to the off-payroll working rules

Changes to the off-payroll working rules (IR35) are taking effect from 6 April 2021. HMRC will take a supportive approach, helping affected organisations to meet their responsibilities under the rules. This is explained in detail in a briefing we published earlier in the year, which gives an overview of how organisations can expect us to work with them to ensure the correct tax is paid. This update answers some of the top questions about our approach, including what we’ve heard in our webinars and other support we’re providing for customers.

Are changes to the off-payroll working rules happening on 6 April 2021?

Yes. The changes to the off-payroll working rules were legislated for in Finance Act 2020 and will take effect from 6 April 2021.

In the Budget, the Government confirmed that some technical changes will be made to the off-payroll working legislation, these include changes to ensure the off-payroll working rules operate as intended and also to improve them. These changes will have effect from 6 April 2021, alongside the rest of the rules.

We have published a Tax Information and Impact Note (TIIN) with more detail on the changes, and updated another on the reform.

Organisations need to implement the new rules from 6 April but should now be taking action to prepare. Find out more about the education and support HMRC is providing to help.

Does the light touch approach to penalties mean customers don’t need to comply with the rules in 21/22?

No. You should be preparing to apply the rules from 6 April.

The light touch approach for penalties means you will not have to pay penalties for inaccuracies relating to the off-payroll working rules in the first 12 months of the operation of the new rules, regardless of when they are identified, unless there’s evidence of deliberate non-compliance.

Income tax and National Insurance Contributions will still be due.

If you realise you have made a mistake in applying the off-payroll working rules, you should put it right, or tell us, at the earliest opportunity.

This may mean that additional tax is payable and statutory interest may be applied.

What is the scope of HMRC’s ‘specialist team’ for off-payroll working?

In the briefing outlining the compliance approach, which was published in February 2021, we said “we will use a specialist team to carry out all our off-payroll working compliance activity.” Ensuring we have relevant skills and expertise in a single team means we can efficiently support customers to apply the off-payroll working rules correctly, and to intervene when appropriate.

Can client organisations make one status decision covering all contractors?

Client organisations cannot make ‘blanket determinations.’

The client organisation must take reasonable care when making a decision about whether the off-payroll working rules apply. This includes that they should look at contractual terms and actual working practices when determining whether engagements are inside or outside of the rules.

A role-based determination is only permissible in limited circumstances if a client organisation applies a decision to a group of off-payroll workers with the same role, working practices and contractual terms.

This is also different to a decision by a client organisation to change the way they engage contractors. It is natural that businesses will consider whether limited companies or other intermediaries are the best way to engage contractors if they are working like employees. This is a business decision for organisations to make.

Is it appropriate for client organisations to ask their agencies, or others, to make OPW status determinations for them?

Client organisations can outsource status determination decisions. However where a client organisation outsources the status determination assessment to another party, the client organisation remains liable for any Income Tax and NICs arising from any incorrect determinations made. They also remain responsible for that conclusion and ensuring that reasonable care is taken in reaching those determinations.

HMRC is providing resources to support on making status determinations, including the CEST tool and also a specific webinar, taking place on 24 March and 28 April. Sign up for one of these or watch a recording here.

Who should pay Employer’s National Insurance Contributions (NICs)?

Contractors can’t be required to pay Employer’s NICs.

If an engagement is inside the off-payroll working rules, then the client organisation, or the agency who pays the contractor’s fees will be responsible for deducting Income Tax and Employee NICs before paying the contractor’s limited company. They will also be responsible for paying Employer NICs. This cannot be deducted from the payment to the contractor’s limited company.

Client organisations and agencies will need to take this into account before quoting contractors the rate they will get. Likewise, contractors will need to ensure they understand their take home pay before agreeing to take on a role.

Some payslips include an entry for employer NICs, leading some contractors believe they are paying these. Contractors should check if your gross pay listed on your payslip matches what you agreed when taking on the role.

If contractors think Employer NICs have been deducted incorrectly they should check this with their deemed employer in the first instance.

Our guidance (ESM2390) and (ESM10019) explains more on this.

What should I do if I think the client might have given incorrect information about their size?

If agencies or contractors are unsure about the size of the client organisation they should request the information and specifically state why they are asking for it. The request should make it clear that it is for the purposes of confirming the organisation’s size under the off-payroll working rules in Chapters 8 and 10, Part 2 ITEPA 2003 and which tax year the request relates to.

Where a medium or large-sized organisation does not respond to a request and has not provided a status determination statement, any liability would rest with them.

Small clients are exempt from applying the changes to the off-payroll working rules. If a client organisation advises that they are small, the contractor’s own limited company will continue to be responsible for determining the employment status, for tax purposes, of their contracts and accounting for the relevant Income Tax and NICs.

Our guidance (ESM10011A) explains more on this.

How are the rules applied if there are international aspects to take into account, for example the contractor’s work is not done in the UK or the client organisation does not have a UK connection?

Our international matters webinar provides specific advice on this and gives you the opportunity to ask questions. These are next taking place on 17 March and 23 April – sign up here. That page also includes a link to watch a recording of a previous webinar.

Some key points include:

• Where the contractor’s limited company or other intermediary is based does not affect whether the rules apply
• The location of any employment agencies in the supply chain does not affect whether the rules apply to the contract or not
• If the client organisation does not have a UK connection, the new rules don't apply. However, the contractor’s intermediary will need to consider the engagement under the existing rules and determine the employment status, for tax purposes, of the contract and account for the relevant Income Tax and NICs if applicable
• If the contractor would be subject to UK tax and NICs if engaged directly, they are likely to be in scope of the changes to the rules.

Our guidance (ESM10025) explains more on this.

Will status determinations made using CEST hold up in case of challenge by HMRC?

From 6 April, client organisations will need to make and communicate a decision about whether an engagement is inside or outside the off-payroll working rules (employed for tax purposes or self-employed for tax purposes). This is known as status determination statement (SDS).

HMRC have a free and easy to use Check Employment Status for Tax (CEST) tool to help client organisations make their decision, and the outcome can be used as an SDS. CEST was rigorously tested against case law and settled cases by officials and external experts. While client organisations do not need to use this tool, HMRC will stand by the result produced by the tool provided the information input is accurate and it is used in accordance with our guidance. For more finely balanced cases where CEST produces an undetermined outcome, client organisations should use the detailed guidance and support we’re providing. This includes CEST specific guidance at ESM11000 and guidance to aide status decision making at ESM0500 should help users form a judgement.

Accessing help and support

We are continuing our comprehensive programme of support including webinars and working with trade and representative bodies. We may also invite affected organisations to a workshop or one-to-one advice call. Details of the help and support we’re providing is on GOV.UK, this includes new dates for webinars, so far up to May 2021.