Off-payroll labour - IR35 in the private sector
Off-payroll labour - IR35 in the private sector
Understand IR35 implications in the private sector and ensure proper compliance with tax regulations to avoid potential penalties and risks.
We have a strong team of experienced IR35 experts who are helping businesses like yours assess the impact of the off-payroll labour new rules following their introduction in April 2021.
The off-paroll/IR35 rules have been in force for all public sector businesses and medium or large-sized private businesses since 6 April 2021, all such organisations are responsible for deciding the employment status of their workers. This includes some charities and third sector organisations. Read about the ten key steps to take.
What companies are affected by IR35 in the private sector?
The new rules are similar to those used for the IR35 Public Sector reforms in 2017 but go further in a number of respects (and these extensions also apply to Public Sector businesses as of April 2021). However, the private sector rules will only apply to medium and large businesses with the definition of an exempt small businesses being based largely on the Companies Act 2006 definition of a small company. Where requested by the worker (or the entity contracting with the end client), any entity must confirm within 45 days whether or not is it treated as ‘small’ under these rules – read more.
How will IR35 affect my business?
The changes affect organisations that engage workers through Personal Service Companies (PSCs) or any other intermediary such as a partnership or LLP. This is because the new rules will require the engaging organisation (the engager) to assess if the intermediaries rules (IR35) apply to the contracts it enters into with any PSCs that are hired directly or via third parties.
Where the engager determines IR35 applies, the person or business paying the PSC (the fee payer) must apply PAYE and NIC deductions to the payment for the worker services. In other words, they must treat the worker as a deemed employee for tax purposes. In addition, the fee payer must also account for employers NIC and potentially the Apprenticeship Levy.
These changes could result in an increase to the operating costs of your business either:
- Directly as a result of being the fee payer
- Indirectly - as those organisations lower down the supply chain seek to increase their charges to mitigate the potential increases in their tax and NIC obligations.
The Government's response to its implementation review confirmed that it would take a light touch approach to penalties for errors in the first year of the new rules. Nonetheless, businesses need to take their new obligations seriously to avoid putting themselves on HMRC's 'risk' list for future years.
If you still need to assess your situation, it is important to establish the profile of your use of PSCs and, potentially, your wider non-payroll labour portfolio, both now and under any new business model you are adopting. Your key stakeholders will need to have a clear understanding of:
- How many PSCs you use
- Which parts of your business use them
- How they are used
- How important they are to the different parts of the business.
This portfolio analysis will provide clarity to what commercial contracts are in place and if they remain fit for purpose. From our experience with helping organisations to date, it is often appropriate to introduce updated contracts that meet the needs of the organisation in the event IR35 will apply to a particular arrangement.
Once all PSC use is identified, processes must be put in place to guarantee that an IR35 assessment is completed before engaging with a worker supplied via a PSC. Clearly, it will be critical to identify which part of the business will be responsible for the IR35 review process, and to consider what level of knowledge there is in the business. You may need to train and support the relevant staff.
How we can help you?
You can rely on us to help you manage this complex issue compliantly and efficiently. We have extensive experience of both earlier IR35 reforms in the public sector and the wider PAYE and NIC compliance obligations of engaging non-payroll labour.
We will work with you and the key stakeholders in the business to identify what contracts may be at risk, assess both the potential financial and operational impact on your business and implement changes that will minimise the impact of the new rules. We can also help you build a robust compliance structure for the future.
BDO’s full guidance on extension of IR35 into the private sector
- Off-Payroll Labour on one page
- Watch our latest webinar discussing the practical and commercial considerations relating to the new rules for IR35 in the private sector.
- IR35 – New rules are imminent
- IR35 - Are you the client, fee payer or another entity in the chain?
- What is a small company under IR35 rules?