After a long lead time and a delay due to COVID, the existing public sector rules are to be extended to include cases where services are provided to a person who qualifies as medium or large and has a UK connection for a tax year. Similar changes are made for NIC purposes. Broadly, the concept of small is based on the Companies Act definition.
For example, a private corporate entity’s financial year ends on 31 March 2020. The period for filing ends on 31 December 2020. This period ends prior to 6 April 2021 so the financial year ending 31 March 2020 will be included in considerations regarding size.
Interestingly, HMRC have taken the decision that they will only use information resulting from the new off-payroll working rules to open compliance checks into returns for earlier years under the IR35 rules if there is reason to suspect fraud or criminal behaviour.
Once an entity has established that it is medium or large, the new rules will apply where:
- an individual (the worker) personally performs, or is under an obligation personally to perform, services for another person (the client);
- the services are provided not under a contract directly between the client and the worker but under arrangements involving a third party (the intermediary); and
- the circumstances are such that if the services were provided under a contract directly between the client and the worker, the worker would be regarded as an employee or office-holder of the client or the worker is an office-holder who holds that office under the client and the services relate to the office.
If these conditions are met, there will be a PAYE requirement somewhere in the payment chain and a number of other requirements on both the payer and the recipient.
It appears clear that the Government are not going to defer the rules again, so this is an important time to discuss these changes with affected clients.