By Nic Hart & Liam Hutton
As part of the UK Government’s emergency measures to tackle the effects of the coronavirus crisis on the UK economy, it announced on 17 March 2020 that the implementation of new regulations subjecting ‘medium and large’ companies to the off-payroll working rules have been postponed until 6 April 2021.
In July 2019 the Government published draft legislation to the effect that from April 2020, the IR 35 rules would no longer apply where ‘medium and large’ companies in the private sector contract with personal service companies for the provision of workers’ services.
However, this implementation date has now been moved to 6 April 2021 as part of the UK Government’s financial measures in light of the coronavirus crisis.
When eventually implemented, the effect of these changes will be that the IR 35 rules, which place the obligation to assess employment status and operate payroll if appropriate with the personal service companies rather than end user companies, will no longer apply to those entities regarded as ‘medium and large companies.’ Consequently, these end user companies will be subject to an obligation to account for tax and national insurance for workers engaged via a personal service company through PAYE under the off-payroll working rules from 6 April 2021.
What is a ‘Medium and Large Company’?
Effectively, a ‘medium’ or ‘large’ company is one which does not fall within the Companies Act 2006 definition of a ‘small company’.
A ‘small company’ under the legislation is one which satisfies two or more of the following requirements:
- Aggregate turnover – Not more than £10.2 million net (or £12.2 million gross)
- Aggregate balance sheet total – Not more than £5.1 million net (or £6.1 million gross)
- Aggregate number of employees – Not more than 50
Currently, and following the impending and now postponed reforms, where the ‘end-user’ client qualifies as a ‘small’ company as above, they will be exempt from the off-payroll working rules, and the IR 35 rules will continue to apply. The obligation in this instance will remain with the personal service company rather than the end user company to make an assessment of employment status and to operate payroll if appropriate.
The Government has postponed the proposed reforms by a year, giving employers, particularly those who would regard themselves as ‘medium’ rather than ‘large’ companies, some temporary rest bite in light of the current coronavirus crisis. However, please be advised that the Government has been clear in the assertion that this is a deferral rather than a cancellation of the implementation of the new rules.
Please do not hesitate to contact us if you have any questions about what this postponement means for your business. We would be happy to give advice and assist with planning for the eventual implementation of the IR 35 reforms, which will now come into force in April 2021. We will of course keep you updated on further developments in this area.