IR35 and Payroll: What you need to know Apr 2, 2021Views: 221
How will IR35 affect payroll?
IR35 reforms are set to be introduced to the private sector on April 6th, impacting contractors’ employment status, and how businesses operate and manage their hiring processes. Medium and large-sized businesses will be affected. The reforms, originally meant to have been introduced last year, are expected to bring £3.1bn in additional tax revenue.
What is IR35 and how is it changing?
IR35 (off-payroll working rules) is an anti-avoidance tax legislation that aims to determine a genuine business (e.g. personal service company) from that of a ‘disguised employee’. A contractor is considered to be a disguised employee when, instead of being treated as a separate business, they are operating and being treated as an employee. There has been wide-spread non-compliance with the rules, and the new reforms aim to combat its misuse.
Under the reforms, the employer is now responsible for assessing whether the contractor is employed or self-employed for tax purposes. HMRC expects that with this new responsibility, the employers will take a more compliant approach to IR35 assessments. The employer’s assessment of the worker’s employment status is communicated in a Status Determination Statement (SDS). It is advised that the HMRC’s assessment tool, known as CEST, is used for this as it comes with the assurance that HMRC will agree with the result as long as reasonable care has been taken.
How is BrightPay ready for IR35?
Changes to workers’ employment status will not only have a significant impact on HR but also on payroll processing. If a worker’s employment status has been determined as being ‘inside’ the IR35 rules, they will need to be treated as an ‘off-payroll worker’ on the payroll. BrightPay payroll keeps this process quick and straight-forward. If a worker has been deemed to be ‘inside IR35’, the employer must apply income tax and National Insurance to their pay, just as they do for regular employees. However, off-payroll workers are not entitled to other employee entitlements, such as auto enrolment, holiday entitlement and statutory pay.
Therefore, when an off-payroll worker is being set up on BrightPay the ‘off-payroll worker’ option must be selected in the ‘Tax, NICs, RTI’ tab. This action disables entitlements that do not apply to inside IR35 contractors. To read more about these entitlements, click here.
Learn more about IR35 and how BrightPay caters for it:
How can you prepare for IR35? What advice can you give to your PSD clients? In our upcoming webinar, co-hosted with industry expert Jas Jhooty, Director at emTax, we will be discussing what contractors and employers can do to best prepare, reviewing essential steps contractors can take to reinforce their self-employed status and demonstrating how to manage off-payroll workers on BrightPay. To register for this free webinar, click here.
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