Private sector organisations will have to take responsibility for confirming the true status of their relationships with contractors (including consultants and freelancers) from 6 April 2021, this change having been delayed by a year due to the pandemic.
Ben Lindsay in our employment team summarises some key points ahead of April.
What is changing in April?
Applying where a contractor provides their services through a Personal Services Company (or other intermediary), the new rules shift the responsibility of determining the contractor’s tax status (in terms of whether they are self-employed or employed) from the personal services company to the end-user client. Organisations can rely on the findings of HMRC’s online checker tool, Check Employment Status for Tax (CEST), so long as the information inputted is accurate and up to date. However, CEST may give an ‘undetermined’ outcome, particularly in more complex cases.
The rules will only apply to medium and large organisations. Small organisations are exempt.
The end-user client must:
- take “reasonable care” in determining the contractor's status;
- provide the contractor (and potentially an agency involved in any chain) with a status determination statement explaining their decision; and
- put in place a process to deal with a disagreement over status, to allow for challenge by the contractor and potentially an agency involved in any chain.
If the contractor is deemed to be an employee, the end-user client (or agency) has to:
- deduct tax and national insurance (NI) through PAYE;
- pay employer’s NI contributions; and
- pay any apprenticeship levy.
This change has implications for:
- medium and large private sector organisations using contractors (including consultants and freelancers);
- contractors who provide their services through an intermediary, such as a Personal Services Company; and
- agencies supplying contractors who provide their services through an intermediary.
How we can help?
We can help determine the status of individuals working for you to ensure that there are no hidden liabilities among your workforce.
Our team can review your contracts and practices to advise you on how to best protect your business, including remaining outside the new tax rules and how to minimise the impact, should you need to recognise your contractors as employees.