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A Guide to the New Off-Payroll (IR35) Tax

Changes are being made from 2020 to increase compliance with the existing off-payroll rules to further fairness between those who work at a company in a similar way. This applies to medium and large organisations in the private and third sectors, who will now be responsible for assessing a contractor’s employment status and deducting the appropriate tax and National Insurance contributions. However, as the method of assessing whether a contractor is outside IR35 isn’t changing, those who are already exempt should continue to be so after April 2020. 

The changes to the IR35 mean responsibility for processing off-payroll working rules will move from the contractor or personal service company to the organisation or ‘end-user’ who are engaging their services. This will also include the responsibility for working out if the rules apply and calculating and deducting all relevant taxes and National Insurance. The 5% allowance currently available to those who the off-payroll rules apply will be removed because of the shift in responsibility.

Who will the off-payroll tax rule affect?

•    Individuals who provide their services through a personal service company and who would otherwise be directly employed. The rules do not apply to those who are self-employed. 
•    Medium and large organisations in the private sector that hire the services of individuals through a personal service company. 
•    Recruitment agencies or other such intermediaries who supply contractors through a personal service company.

Small, private businesses are exempt from the new rules which means that the contractor or personal service company will remain responsible for determining whether the off-payroll rules apply. A small business is identified by having two or more of the following: a turnover of £10.2million or less, a balance sheet total of £5.1million or less and/or a maximum of 50 employees. 

If you would like to speak to a payroll expert about the new rules or to relieve yourself of the burden altogether, please don’t hesitate to get in touch with our experienced team at Essential Payroll, a leading payroll outsourcing specialist. Simply contact us online or call 02382 023223 today. 

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