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Off-Payroll Working Rules (IR35)

IR35 was introduced in April 2000.  It broadly means that when a worker is engaged through an Intermediary under terms and conditions which are indicative of employment, PAYE and NIC apply to payments received from that contract.  Determining employment status is a complex area with slightly different rules for tax, national insurance and employment rights.

What is changing?

For all Public and Private Sector businesses, the responsibility for deciding whether these rules apply has shifted from the worker’s business to the end user.  This is subject to exemptions for contracted out services and certain small businesses.  The responsibility for accounting for tax and national insurance also transfers from the worker’s intermediary to the “fee-payer”.  If the correct procedures are not followed, the liability for any underpaid tax and national insurance, plus interest and penalties can transfer up the supply chain.

In practice, this means that there will only be a marginal impact on worker’s businesses that are currently complying.  However, for those that are not, there will be a significant impact on net pay.   Who bears the additional costs will depend upon supply and demand.

Who is affected?

• All medium and large businesses who use contractors, sub-contractors, freelancers, employment business or labour agencies.

• Any employment businesses or labour agencies who supply workers engaged through limited companies to end user clients.

• Any workers who provide their services to the Public Sector or medium and large private businesses.

• Any advisers who work with any of the above businesses.

What do you need to do now?

You need to:

• Identify whether there are intermediaries in your supply chain, which may not be immediately obvious.

understand who the end-hirer is and who the fee-payer is and identify whether there are any overseas businesses in the supply chain.

• Communicate with all the parties affected including providing necessary training and updating software.

Issue or review status determination statements.

• Monitor working practices and update SDS as necessary.

• Update contracts.

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