From 6 April 2021, HMRC has implemented its long-awaited reforms to the changes to the IR35 legislation. The legislation was originally due to start from 6 April 2020 but was sensibly delayed due to the implementation date being at the peak of the first wave of the pandemic.
This area has been under focus for some time by HMRC due to the so called ‘gig economy’ and their thoughts on an increasing tax gap because of it. Sport tends to have its fair share of off-payroll working arrangements, and you will have seen high profile cases with Premier League match officials and Uber, in particular; these cases have driven these reforms and the legislation is now in place. Therefore, now is the time to review whether you are affected. This could have some commercial consequences, particularly if you have arrangements with key individuals ‘off-payroll’ that now need to change.
A summary of the proposed changes, together with the key points you will need to think about following 6 April 2021, include:
Medium and large sized businesses will be responsible for implementing the legislation. Consequently, smaller businesses will not be affected by the changes.
The responsibility for operating the legislation will fall to the engager, or client, who will be required to determine the employment status of the worker. The legislation brings into scope intermediaries, such as personal services companies, and those who are engaging with an organisation through a company may be caught under the new rules. There is also a requirement to share the outcome of the determination of status with the worker and any entity within the worker supply-chain who may be responsible for paying the worker.
HMRC have recommended that its Check Employment Status for Tax (CEST) tool is used to help determine the status of the worker. However, the CEST tool has not always been accurate and often gives ‘inconclusive’ as a result, meaning a more manual approach is needed.
Where there is a lengthy supply chain between the engager and the worker, it will be the responsibility of the entity closest to the worker to apply the legislation and deduct PAYE and National Insurance. Furthermore, where the supply chain includes any off-shore entity, the obligation to apply the legislation will sit with the UK agency closest to the off-shore entity.
Where payments to a worker fall within the scope of the proposed legislation, the PAYE and National Insurance due will be paid across to HMRC through the payroll, in accordance with ‘real time’ reporting. The amount upon which PAYE and National Insurance will be calculated will be based upon the net value of the invoice, being the amount before any VAT is charged. The worker will remain responsible for its VAT obligations. The engager will also be liable for Secondary Class 1 National Insurance, together with the Apprenticeship Levy on the invoice values included in the payroll if applicable. It is not proposed that any employment rights will be transferred to the engager.
One fundamental change for the worker is that they will no longer be able to claim a 5% ‘overheads’ deduction as part of calculating their final tax and National Insurance liabilities.
Determining a business’ size
The definition within the Companies Act will be applied to determine who is a medium and large business for IR35 purposes, and will apply where two or more of the following conditions are met:
Annual turnover = £10.2m or more
Balance sheet total = £5.1m or more
Number of employees = 50 or more
The government recognises that the Companies Act definition may not apply to non-corporate entities, and so the turnover and number of employees of the organisation will be set at similar levels.
The government recognises that the Companies Act definition may not apply to non-corporate entities,
You should act and review this now. It is advised you seek professional advice before making any large-scale changes. The following questions could help review the risk and help respond if necessary:
Do you engage any workers who are not paid through the payroll?
Are you a medium or large business?
Are you an agency supplying workers who are medium or large businesses?
What processes do you have in place to be able to determine the employment status of a worker?
Do you know who in your business has details of the workers you engage?
Are you able to manage the expectations of the legislation?
If you have any questions about the new IR35 legislation and how it applies to your organisation, please contact Tom Wilson, Partner, at firstname.lastname@example.org.
haysmacintyre is an award-winning mid-tier firm of chartered accountants and tax advisors who have been working in the sports sector for over 20 years and act for over 60 high-level sports clients. They remain committed to ensuring we remain at the forefront of advice to the sector. This is what sets them apart from our competitors and represents a significant investment of both time and resources.
haysmacintyre's dedicated sports team is one of the key sub sectors on which haysmacintyre focuses. As a result, they have considerable experience of working with NGBs and sports charities, as well as corporate clubs and private clients in the sector. haysmacintyre have become trusted business advisors to many of them and they often turn to us to solve problems and discuss ideas.
haysmacintyre's experience in the sports sector means they can act as an independent sounding board for their clients and provide you with insights into the challenges that similar organisations face and how best to respond to them. They maintain regular communication and close liaison with clients throughout the year to discuss developments and plans, meaning they are best placed to advise on any accounting or tax issues.
For more information, please visit www.haysmacintyre.com