Motor Trade Legal News

Employment Update - Off-Payroll IR35 Regime

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Created on Friday, 17 September 2021 15:47

We are receiving a number of enquiries from Members concerning the off-payroll IR35 regime which came into force on the 6th of April this year.

The following provides our summary and comments on the regime although, as ever, Members are advised to consult their appointed lawyers wherever they might need specific clarification or guidance.

The off-payroll IR35 regime broadly applies when a private sector entity (other than one that is ‘small’ i.e. will need to satisfy at least two out of the following three requirements; annual turnover is not more than £10.2m, balance sheet total is not more than £5.1m, or number of employees is not more than 50) engages a worker via an intermediary such as a personal service company (PSC) e.g. an agency and, but for the existence of that intermediary, the relationship between the worker and the end client would be one of employee and employer.

The regime shifts the responsibility for whether IR35 applies from the PSC to the end client and, in the event IR35 does apply, the obligation to make deductions in respect of income tax and National Insurance contributions (NICs) is shifted from the PSC onto the fee-payer (this could be the end client if it contracts directly with the PSC).

A key element of the off-payroll IR35 regime is the ‘notional’ or ‘hypothetical’ contract between the end client and the worker and whether this amounts to a contract of employment.  In addition to the body of case law and guidance that has developed, and continues to develop, under the general IR35 regime, HMRC has an online employment status tool, a check of employment status for tax (CEST), which provides HMRC’s view on the employment status of a worker. This may be found at

www.gov.uk/guidance/check-employment-status-for-tax

HMRC will stand behind the result unless a compliance check finds that the information was  inaccurate.  Although the service is anonymous it is possible to print out a copy of the answers provided together with HMRC’s response, which should then be kept with the relevant tax records for future audit purposes.  It is important to note that HMRC has stated that it will not stand by any CEST result that has been achieved through contrived arrangements that have been deliberately created or designed to get a particular outcome.  In such cases HMRC would see this as deliberate non-compliance, and the user risks financial penalties.

If the off-payroll regime applies, the end client is responsible for providing the worker and PSC with a status determination statement (SDS) stating whether the client regards the worker as an employee for income tax purposes and giving reasons for that conclusion.  The client must take reasonable care when coming to the conclusion, and failing to do so may result in the end client being responsible for the PAYE and NICs obligations if IR35 is found to apply.

HMRC states that it is acceptable for a client to make a determination for a group of workers, providing those workers are engaged under the same contractual terms and conditions, and in practice work under the same terms and conditions.

Where a worker (or PSC) receives an SDS from an end client and disagrees with the conclusion, the worker (or PSC) can make representations to the end client that the SDS is incorrect.  Within 45 days of receipt of those representations, the end client must either (1) give a statement to the worker (or PSC) that the client has reconsidered the SDS in light of the dispute and has decided its conclusion is correct (giving reasons behind this decision), or (2). give the worker (or PSC) a new SDS which has a different conclusion to the disputed SDS and state that the previous SDS is withdrawn.

This article is general advice only and members should consult professional advisors in relation to the facts of any individual case.