Tax update: changes to off-payroll working from April 2021

11 December 2020

The government has passed legislation confirming that the new IR35 rules will be introduced from April 2021. It is important that housing associations plan for these changes and that processes are in place to ensure that the new obligations are met. Our tax advisors RSM explain how this will work in practice.

The current off-payroll working rules (IR35) have been in place since 2000. They were designed to ensure that an individual who works like an employee, but through their own intermediary such as a Personal Service Company (PSC), pays broadly the same Income Tax and National Insurance contributions as other employees.

From April 2021, medium and large organisations in the private and third sectors (excluding those that are “wholly overseas”) will be within the scope of the rules. Broadly, the legislation shifts responsibility for deciding whether the rules apply away from the individual’s PSC to the organisation that is the end user (or client) of the worker’s service, which might be a housing association.

Where it is determined that the rules apply to a particular arrangement with an off-payroll worker, responsibility for deducting the associated employment tax and National Insurance contributions (NIC), including the additional cost of employer’s NIC, will rest with the organisation that is paying the worker’s PSC (which, again, might be a housing association).

Importantly for the social housing sector, the new rules take precedence over the Construction Industry Scheme (CIS). Therefore, housing associations operating the CIS will need to check the status of any off-payroll sub-contractors operating via intermediaries, such as a PSC.

Where the end user of the worker’s services is a small business, as defined by the Companies Act 2006, responsibility for assessing the arrangements and applying IR35 where necessary will remain with the worker’s intermediary, such as the PSC.

What should you be doing in advance of the changes?

Housing associations have limited time to prepare for the new rules. As a starting point we would suggest that you:

  • Identify all current workers, including CIS sub-contractors, who operate via ‘off-payroll’ arrangements, such as PSCs, and who you expect to still be working for you after 5 April 2021. This includes off-payroll workers sourced via third parties such as recruitment agencies.

  • Assess the contracts and working arrangements of off-payroll workers and determine whether the new rules are likely to apply. Where they do apply, calculate the additional cost of the arrangements in terms of employer’s NIC and apprenticeship levy (where applicable).

  • Ensure that processes are in place to assess the impact on potential future engagements with off-payroll workers that will be entered into after 5 April 2021.

  • Update systems and processes to identify impacted workers and to ensure that the various compliance obligations are met, including the requirement to provide a formal Status Determination Statement for all off-payroll workers who provide their services through an intermediary.

RSM has prepared a factsheet with details of the changes and the impact on the social housing sector. Alternatively, for more information, please contact David Williams-Richardson.